Saturday, 28 January 2012

HSBC reportedly under investigation by US agencies for money laundering

(Reuters)- HSBC Holdings PLC is under investigation by a U.S. Senate panel in a money-laundering inquiry, the latest step in a long-running U.S. effort to halt shadowy money flows through global banks, according to people familiar with the situation and a company securities filing.

The inquiry being conducted by the Senate Permanent Subcommittee on Investigations could yield a report and congressional hearing later this spring, these people said. The subcommittee has a history of conducting high-profile hearings that have proved embarrassing for the world's biggest banks.

The intensifying scrutiny of HSBC is the latest in a series of investigations by U.S. officials into how global banks have processed -- and in some cases, intentionally hidden -- financial transactions on behalf of countries which allegedly support terrorism, corrupt foreign officials, drug gangs and criminals. Since 2008, European and U.S. banks have signed deferred prosecution agreements and paid more than $1.2 billion in penalties for alleged violations of anti-money laundering regulations.

The specific focus of the Senate probe of HSBC isn't known. A Reuters review of legal documents and prior regulatory probes, though, points to a number of alleged breakdowns in HSBC's anti-money laundering systems.

HSBC spokesman Robert Sherman said in a statement, "We have ongoing discussions with officials" including the Senate panel "on a number of regulatory and compliance matters. The nature of these discussions is confidential; in all cases, we are cooperating."

A spokesperson for the Senate subcommittee declined comment.

Earlier this month, HSBC named former top U.S. Treasury Department official Stuart Levey as chief legal officer in a sign of how the bank is hiring outside experts in money laundering. Levey, who specialized in combating terrorism financing and left the Treasury Department last year, is based in London. An HSBC spokesman said Levey wasn't available for comment.

Stuart Gulliver, HSBC chief executive, said in a statement this month that Levey's experience "dealing with international financial and legal issues is highly relevant to a global bank such as HSBC."


For HSBC, which has operations in more than 80 countries and territories, the Senate probe is another sign that U.S. law enforcement officials are widening their inquiries into the London bank - one that for the past decade has repeatedly drawn scrutiny from U.S. financial regulators for weak money-laundering controls and allegedly enabling healthcare fraud and tax evasion.

In 2003 and 2010, two U.S. bank regulators raised serious concerns about the bank's anti-money laundering systems and staff and ordered the bank to improve anti-money laundering systems and personnel, according to enforcement actions by the Federal Reserve Bank of New York and the Comptroller of the Currency, a Treasury Department unit.

In securities filings, the bank has disclosed increasing inquiries. In 2010, the bank disclosed that it had received grand jury subpoenas and was being investigated by the Justice Department in money-laundering inquiries. It subsequently said the district attorney's office in Manhattan was investigating.

Then in November, HSBC said additional inquiries were being pursued by the Senate panel and the U.S. Securities and Exchange Commission, according to an SEC filing by HSBC USA Inc. The bank said the investigations focused on money laundering and the proper filing of U.S. taxes by customers. The unit is HSBC's main U.S. business, offering retail and corporate banking to some 4 million customers. HSBC's North American operations, which include HSBC Bank USA and a consumer-finance unit, account for about 5 percent of HSBC profits.


Investigations into how the bank allegedly was used to launder money extend to Vienna, W. Va. There, a pain-management doctor named Barton J. Adams was indicted in 2008 by the Justice Department on 169 counts of alleged healthcare fraud, tax evasion, money laundering and witness tampering. Adams allegedly moved hundreds of thousands of dollars in Medicare fraud proceeds between an HSBC Bank USA internet account and other HSBC accounts in Canada, Hong Kong and the Philippines, according to U.S. District Court filings in West Virginia. Dr. Adams has pleaded not guilty.

Stephen Herndon, an attorney for Adams, declined to comment citing the ongoing litigation. A spokesman for the U.S. attorney's office in West Virginia declined comment.

To be sure, HSBC isn't the only major bank to face scrutiny from regulators over alleged money laundering. In 2009 and 2010, Barclays PLC, Lloyds Banking Group and Credit Suisse Group agreed to forfeitures totaling $1.2 billion with U.S. regulators that found the banks evaded U.S. law in aiding sanctioned countries. In 2010, Royal Bank of Scotland Group PLC agreed to forfeit $500 million to the U.S. to cover ABN Amro Holding NV's illegal U.S. dollar transactions tied to Iran, Libya, the Sudan and Cuba. RBS and a bank consortium acquired ABN, a Dutch bank, in 2007.

Law-enforcement scrutiny is increasingly focused on narcotics proceeds moving between the U.S. and Mexico. In 2010, for example, Wachovia Bank, acquired by Wells Fargo & Co. in 2008, agreed to a $160 million settlement with the Justice Department, which alleged that failure in controls at the bank allowed drug traffickers to launder drug money tied to Mexico.

A 2011 study by the Government Accountability Office said that money from illegal drug sales in the U.S. that flows back to Mexico -- often in the form of large currency shipments called "bulk cash smuggling" -- totals between $18 billion and $39 billion a year. John Cassara, an expert on money laundering and former Treasury agent, said U.S. authorities struggle to stop the money flowing from the U.S. into Mexico.


HSBC has faced several orders to improve its anti-money laundering policies. In 2003, HSBC Bank USA, under an agreement with the Federal Reserve Bank of New York and New York bank regulators, said a "common goal" with regulators was that the bank would "ensure that the bank fully addresses deficiencies in the bank's anti-money laundering policies and procedures."

At the time, the bank agreed to design a program to upgrade internal controls to ensure compliance with Bank Secrecy Act provisions to better monitor "suspicious or unusual activities."

In early 2010, HSBC again came under scrutiny. The Senate panel alleged in a report, titled "Keeping Foreign Corruption out of the United States," that HSBC, along with other banks, had allowed high-risk individuals, known as politically exposed persons, or PEPs, to route money through the U.S. financial system. Such persons are typically powerful foreign leaders, relatives and close associates from regimes prone to corruption.

The 2010 Senate report analyzed HSBC's ties to Angola, the oil-producing African country prone to graft and mismanaging oil revenues. The Senate report alleged that HSBC provided U.S. banking services to politically connected officials of Angola's national oil company through Banco Africano de Investimentos, or BAI, an Angolan private bank, without designating the transactions as potentially high risk. HSBC allowed those money movements "despite the presence of PEPs" in BAI's management and clientele.

At a Senate hearing, Wiecher Mandemaker, then a director of general compliance for HSBC Bank USA, said the bank believed that institutions such as BAI were important to helping move Africans "into the modern banking system." The HSBC official said the bank had thoroughly investigated BAI and that it was HSBC's policy to discourage banking relationships with PEPs unless the bank had a long-standing relationship with the client and the bank believed the client had a "legitimate source of funds."

Mandemaker has since left the bank and could not be reached for comment.

In late 2010, the bank was hit with another order from a U.S. bank regulator to clean up its anti-money laundering system after the Office of the Comptroller of the Currency, or OCC, investigated several businesses that routed cash for clients and other banks. The probe and subsequent consent order "identified deficiencies" in the HSBC's anti-money laundering practices and among other requirements, ordered the bank to hire a permanent regional compliance officer and submit full compliance plans in policing improper money flows.

HSBC subsequently exited or curtailed those businesses. It separately has announced plans to exit numerous U.S. businesses, agreeing to sell both bank branches and a credit card business amid a shift to faster-growing economies.

The OCC found the bank's "compliance program and its implementation are ineffective" and that the bank faced the "significant potential for unreported money laundering or terrorist financing."

The OCC consent order said that between 2006 and 2009, HSBC had not properly monitored bulk cash transactions. The OCC order also said the bank did not "appropriately" designate customers as "high risk" even if the customer affiliation with a politically exposed person could hurt the bank's reputation. The report also criticized the bank for a backlog of unprocessed suspicious activity reports, known as SARs, that can tip off regulators to questionable money flows.

As part of the consent order, the bank said it had "committed to taking all necessary and appropriate steps to remedy the deficiencies."

Sherman, the HSBC spokesman, said, "We acknowledged we fell short of our own expectations and are working with our regulators to address and resolve the issues raised."

Sherman said the bank had taken steps such as investing in staff, a new anti-money laundering system, a new compliance helpline, and new training for all U.S. employees.

Tuesday, 24 January 2012

Business Line : Features / Mentor : Singapore, a preferred tax haven

Business Line : Features / Mentor : Singapore, a preferred tax haven

Capital gains aren't taxed, inheritance taxes aren't charged, and individuals are taxed only on income earned in Singapore.
A Canadian company is in the process of investing in India and examining modes of investments that will make its overall global tax rate most effective. The company is convinced that the investment may be made through a tax haven to achieve this goal, and the key command decision lies in routing the investment to India.


An understanding of tax havens will help the decision process. A tax haven is a country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Tax havens provide almost no financial information to foreign tax authorities.
The main benefits of investing in a tax haven accrues from the fact that they offer a range of taxation levels from which to choose, allow for the creation of offshore entities to increase privacy, and have complex and detailed legislation to protect investors' assets. Andorra, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Cook Islands, Hong Kong, the Isle of Man, Mauritius, Lichtenstein, Monaco, Panama, Switzerland, St Kitts and Nevis are all considered to be tax havens.
Many foreign institutional investors route their investments into India through one of these tax havens, so that the benefits of capital gains as well as dividend taxations are idealised. The recent past witnessed many such investments routed through Mauritius which, till recently, was the preferred destination for this purpose. Though Mauritius is a proven tax haven, disturbing stories regarding this country and the review of the Double Taxation Treaty with this country are forcing genuine investors to look at some other alternatives. Pressure from foreign governments, which want to collect tax revenue heretofore perceived by them to be hidden in havens, has caused some tax havens to sign tax information exchange agreements and mutual legal assistance treaties. This provides foreign governments with formerly secret information regarding investors' offshore accounts.
While countries such as Netherlands, Cyprus etc are still considered as tax haven choices, Singapore, with an area of 712 square kilometres, an equatorial climate, income tax only on repatriation basis, and a wide treaty network with around 50 countries, is fast becoming a preferred destination. Let us look at some of the relevant information related to this tiny nation.


The corporate tax rate in Singapore is 17 per cent. GST Tax is applicable when annual turnover exceeds S$1 million. Dividends and capital gains earned from foreign subsidiaries/branches aren't liable to tax in Singapore. There is no withholding tax on dividend distribution by Singapore companies. The withholding tax on interest is 15 per cent, and on royalties 10 per cent.
Personal income tax rates in Singapore are one of the lowest globally. Tax rates are progressive and determined by residency. Taxes come into play if the income exceeds S$ 22,000. The maximum rate is 20 per cent for income in excess of S$320,000 per annum. Capital gains aren't taxed, nor are inheritance taxes charged, and the interesting point is that individuals are taxed only on the income earned in Singapore.
A non-resident of Singapore will be taxed on all net income earned in Singapore post deduction of expenses and donations at 15 per cent for employment income, and 20 per cent for director's fees and consultant fees. Estate duty payable on the death of an individual stands abolished since 2008.
Foreigners can set up a company in Singapore with a single shareholder, one resident director with a local address, and a minimum paid up capital of S$1 within a day or two. Though self-registration isn't permitted to foreign individuals or entities, local professional firms can support not only company formation but also arranging of local nominee directors. Foreigners can get employment visa or entrepreneur visa and short-term visa for attending to company matters.
The latest infrastructure, developed capital markets, an educated workforce, comparatively stable political institutions and a low crime rate are considered to be further attractions in addition to the tax benefits. However, on the downside, a few negative aspects, such as high cost of living for employees, mandatory filing of audited accounts of the parent company of an alien nation (control also becomes an issue when a subsidiary is partially owned by another outside organisation), mandatory designation of a working secretary from Singapore etc, need consideration.
The company in this particular case is convinced that Singapore is a location where East meets West — both geographically and culturally — and it provides an alternative gateway to all major Asian markets.

Friday, 20 January 2012

National Taxpayer Advocate Delivers Annual Report to Congress; Focuses on IRS Funding and Taxpayer Rights

WASHINGTON — National Taxpayer Advocate Nina E. Olson released her annual report to Congress, identifying the combination of the IRS’s expanding workload and declining resources as the most serious problem facing taxpayers. The result, the report says, is inadequate taxpayer service, erosion of taxpayer rights, and reduced tax compliance. The Advocate expressed her continuing concern that the IRS’s expanding use of automated processes to adjust tax liabilities is causing harm to taxpayers and recommended that Congress enact a comprehensive Taxpayer Bill of Rights.
“The overriding challenge facing the IRS is that its workload has grown significantly in recent years, while its funding is being cut,” Olson said in releasing the report. “This is causing the IRS to resort to shortcuts that undermine fundamental taxpayer rights and harm taxpayers – and at the same time reduces the IRS’s ability to deliver on its core mission of raising revenue.”
Workload Overload. The sharp increase in the IRS’s workload is due to several factors, including the increasing complexity of the tax code and the code’s frequent changes, the need to provide service to an increasingly diverse taxpayer population, the IRS’s increasing responsibility for administering economic and social policies, a surge in refund fraud and tax-related identity theft, and the implementation of new third-party information reporting requirements.
There were approximately 4,430 changes to the tax code from 2001 through 2010, an average of more than one a day, including an estimated 579 changes in 2010 alone. The IRS must explain each new provision to taxpayers, write computer code so it can process returns affected by the provision, and train its auditors to identify improper claims.
In addition, the report says, an expansion of refundable credits in recent years – including the First-Time Homebuyer Credit, the Making Work Pay credit, the American Opportunity tax credit, the health care premium tax credit, the adoption tax credit, and the Additional Child Tax Credit – has helped spawn an increase in illegal activity that seeks to profit off the tax system by filing bogus refund claims and often by stealing and using another taxpayer’s identity. While refundable credits provide valuable benefits to the target populations, they can be tempting targets for fraud because taxpayers eligible for them may claim refunds that exceed the amount of taxes they have paid. In 2011, the IRS’s Electronic Fraud Detection System (EFDS) flagged 1,054,704 returns on suspicion of fraud, an increase of 72 percent over 2010. Meanwhile, the IRS’s centralized Identity Protection Specialized Unit (IPSU) received more than 226,000 identity theft-related cases, an increase of 20 percent over 2010.
“Each year,” Olson wrote, “the IRS’s task in identifying these claims has become more challenging, with the inevitable result that some fraudulent claims are never identified and many legitimate claims are mistakenly held up, imposing a significant burden on honest taxpayers.”
Shortcuts” Shortcut Taxpayer Rights: “Non-Audits,” IRS Math Errors, Lack of Notice, and Delays. To keep up with its rising workload, the IRS is increasingly relying on automated data-matching procedures to identify potentially inaccurate claims and adjust tax liabilities. However, automated processes are inherently imperfect, so the taxpayer’s return position often turns out to be correct. Moreover, taxpayers subject to audits are entitled to established taxpayer rights protections. But an increasing number of IRS adjustments are not classified as audits, so these protections often do not apply. Throughout the report, Olson describes IRS practices that “harm taxpayers by acting on assumptions of noncompliance arrived at by automated processes that do not solicit, encourage, or allow taxpayer response.”
Non-Audits and Automated Examinations. In 2010 alone, the IRS made about 15 million contacts with individual taxpayers to adjust their tax liabilities, but it treated only about ten percent (1.6 million) as audits. Thus, in the majority of cases, the IRS’s actions did not give rise to traditional audit protections, including the right to avoid repetitive and unnecessary examinations and the right to seek review of the IRS’s determination in the U.S. Tax Court before tax is assessed. Even where the IRS designated reviews of individual taxpayer returns as “audits,” it conducted about 78 percent of them by correspondence in a highly automated campus setting where no single IRS employee was responsible for the audit, making it more difficult for the taxpayer to communicate with the IRS about his or her case.
Some “Math Errors” May Be Corrected Using IRS Data. In 2010, the IRS issued notices correcting 10.6 million “math errors,” up from four million in 2005. These notices are tax assessments that presumably result from mathematical or clerical errors. Unless a taxpayer disputes the IRS assessment within a limited timeframe, it may not be appealed to the Tax Court. The report notes that math error authority is increasingly used where there is disagreement over a facts-and-circumstances issue. The report says that math error notices are often vague and do not state the perceived error with specificity, making it difficult, if not impossible, for affected taxpayers to determine what has changed on their returns and whether to accept or contest the adjustments. Taxpayers whose returns are correct sometimes do not respond because they do not know what is being asked of them. IRS math error notices also are sometimes inaccurate. When the IRS used math error authority in 2010 to disallow exemptions for dependent children on about 300,000 returns, it ultimately had to reverse about 55 percent of the adjustments. Of the 184,000 corrected math errors, a Taxpayer Advocate Service (TAS) sample showed the IRS had internal data to immediately resolve 56 percent of these reversals, and thus could have avoided denying eligible taxpayers their dependency exemptions and related tax credits and refunds.

The IRS Determines Some Taxpayers Have Committed Fraud Without Notifying Them and Giving Them an Opportunity to Respond. Under a program designed to detect returns relating to a scheme known as “Operation Mass Mail,” the IRS declined to process about 900,000 returns in 2011. In most situations where the IRS identifies questionable claims, it sends notices to the affected taxpayers to give them an opportunity to contest the IRS’s position. In these cases, however, the IRS simply “auto-voided” the returns, providing the individuals who had submitted them with no notice of the IRS action. Yet in tens of thousands of these cases, the IRS later marked the accounts with a code that indicates it had erred and the return had been submitted by a legitimate taxpayer. The report expresses concern that this “auto-void” procedure violates fundamental notions of due process, as individuals whom the government suspects of fraud – a serious charge – normally are given notice and an opportunity to respond before the government takes adverse action.
Substantial Delays to Receive Large Refunds. Among taxpayers who sought assistance from TAS after their refunds were withheld on a suspicion of fraud, 75 percent received relief. These taxpayers had to wait an average of nearly six months overall to receive their refunds. The average refund amount was $5,600, a significant sum for most households. Thus, these delays can create significant financial hardships.
“In light of the IRS’s indiscriminate use of automation to avoid personal contact with taxpayers and the sheer volume of work to be accomplished,” Olson wrote, “the IRS is increasingly in danger of judging taxpayers as noncompliant when in fact they are not.”
Taxpayer Service Concerns: Delays and Non-Responses to Taxpayer Inquiries. Two key indicators of taxpayer service are the IRS’s ability to answer taxpayer telephone calls and the IRS’s ability to respond to taxpayer correspondence. From FY 2004 to FY 2011, the percentage of calls that the IRS answered from taxpayers seeking to speak with a telephone assistor dropped from 87 percent to 70 percent.
Over the same period, the IRS’s ability to timely process taxpayer correspondence also declined. Comparing the final week of FY 2004 with the final week of FY 2011, the backlog of correspondence in the tax adjustments inventory jumped by 158 percent (from 357,151 to 920,768), and the percentage of correspondence in this inventory classified as “over-age” (i.e., 45 days or older, with issues that have not been resolved) increased by 309 percent (from 11.5 percent to 47.0 percent of correspondence).
“The decline in these key measures is deeply disturbing,” the report says. “Telephone calls and correspondence are the two main ways taxpayers communicate with the IRS. Few government agencies or businesses would be satisfied if their customer service departments were unable to answer three out of every ten calls, nor would they be content when nearly half of all correspondence takes more than 6½ weeks to answer.”
Increased Diversity of the Taxpayer Population Presents Challenges. When the federal individual income tax was enacted in 1913, it applied to high-income taxpayers. The individual taxpayer population in 1913 was estimated at 358,000, grew to 47.1 million in 1944, and stands at 141.2 million today. The taxpayer population has become more diverse over time due to demographic developments as well as expansions in the scope of the tax law. With one tax return filed for about every two people in the United States each year, demographic trends – including ethnicity, economics, gender, age, and geography – are having an impact on both taxpayer service needs and IRS compliance initiatives.
Revenue Consequences of IRS Underfunding. The report says inadequate funding for the IRS contributes to many of these problems and means the IRS cannot adequately pursue unpaid tax liabilities. The report points out that the IRS functions as the “accounts receivable” department of the federal government, as it collects more than 90 percent of all federal revenue and therefore provides the funds that make almost all other federal spending possible. On a budget of $12.1 billion, the IRS collected $2.42 trillion in FY 2011. In other words, for every $1 that Congress appropriated for the IRS, the IRS collected about $200 in return. However, current federal budgeting rules do not take into account that a dollar appropriated for the IRS typically generates substantially more than a dollar in additional tax collections, leaving the agency substantially underfunded to do its job and limiting its ability to close the tax gap and thereby help reduce the federal budget deficit.
The report points out that the size of the tax gap raises important equity concerns, because compliant taxpayers end up carrying a disproportionate share of the tax burden. For 2001, the most recent year for which a complete tax gap estimate existed when the report was written, the IRS estimated it was unable to collect $290 billion in taxes. Since there were then 108 million households in the United States, the average household paid a “noncompliance surtax” of almost $2,700 to enable the federal government to raise the same revenue it would have collected if all taxpayers had reported their income and paid their taxes in full. “That is not a burden we should expect our nation’s taxpayers to bear lightly,” the report says. [Last week, the IRS released updated tax gap estimates. For 2006, the IRS estimated it was unable to collect $385 billion in taxes when there were 114 million households, producing an updated “noncompliance surtax” of nearly $3,400 per household.]
National Taxpayer Advocate Recommendation. In light of the IRS’s unique role as the federal revenue collector, the National Taxpayer Advocate recommends that Congress develop new budget procedures designed to fund the IRS at a level that will enable it to meet taxpayer needs and maximize tax compliance, with due regard for protecting taxpayer rights and minimizing taxpayer burden.
The report urges Congress to codify a Taxpayer Bill of Rights that would clearly list the major rights and responsibilities of taxpayers. “The U.S. tax system is based on a social contract between the government and its taxpayers,” Olson wrote. “Taxpayers agree to report and pay the taxes they owe and the government agrees to provide the service and oversight necessary to ensure that taxpayers can and will do so.”
Most Taxpayers Don’t Know Their Rights. Over the past two decades, Congress has enacted three significant taxpayer rights’ bills, but the number of bills and the lack of publicity have muddled the message. The report describes a recent taxpayer survey in which 55 percent of respondents said they did not believe they had rights before the IRS and 61 percent did not know what their rights are.
“I believe taxpayers and tax administration will benefit from an explicit statement of what taxpayers have a right to expect from their government and what the government has a right to expect from its taxpayers,” Olson said.
10 Taxpayer Rights. The report recommends that Congress organize taxpayer rights under the following ten broad principles: (1) right to be informed; (2) right to be assisted; (3) right to be heard; (4) right to pay no more than the correct amount of tax; (5) right of appeal; (6) right to certainty; (7) right to privacy; (8) right to confidentiality; (9) right to representation; and (10) right to a fair and just tax system.
5 Taxpayer Responsibilities. To help taxpayers understand what the law requires of them, the report further recommends that Congress organize taxpayer responsibilities under the following five principles: (1) obligation to be honest; (2) obligation to be cooperative; (3) obligation to provide accurate information and documents on time; (4) obligation to keep records; and (5) obligation to pay taxes on time.
The report summarizes recommendations the Advocate has made in past reports to create additional taxpayer rights and recommends that those rights be incorporated into Taxpayer Bill of Rights legislation. “It has been 13½ years since we have had major taxpayer rights legislation,” Olson wrote. “Our laws have not kept pace with our notions of procedural fairness in 21st century tax administration, particularly given our tax system’s expanded and diverse taxpayer base and duties.”
Federal law requires the National Taxpayer Advocate to submit an Annual Report to Congress that identifies at least 20 of the most serious problems encountered by taxpayers and makes administrative and legislative recommendations to mitigate those problems. Overall, this year’s report identifies 22 problems, provides updates on four previously identified issues, makes dozens of recommendations for administrative change, proposes 13 recommendations for legislative change, and analyzes the 10 tax issues most frequently litigated in the federal courts.
Among other things, the report contains:
  • A comprehensive overview of the nearly 100-year history of the U.S. tax system, which details how the income tax expanded from a “class tax” to a “mass tax,” how the IRS has changed from focusing on personal, local service to automated, centralized processes, and how the mission of the IRS has expanded from pure tax collector to disburser of federal benefits as well.
  • An analysis of the IRS’s current examination strategy that discusses the IRS’s increasing use of automated procedures not technically classified as audits to adjust tax liabilities. The report argues that these procedures deprive taxpayers of traditional audit rights and make it difficult for taxpayers to discuss their cases directly with an IRS examiner.
  • A research study on the impact of tax liens on taxpayer compliance behavior. The results suggest the overuse of liens may undermine tax collection by reducing payment compliance, reducing filing compliance, and reducing the amount of income earned (and thus the amount of tax due) by taxpayers against whom liens have been filed.
  • A recommendation that Congress modify the circumstances under which the personal information of decedents, including their names, Social Security numbers, and dates of birth, are made available to the public shortly after their deaths. Such information is used by identity thieves to commit tax fraud.
  • A “Most Serious Problem” discussing the IRS’s policy change in applying key terms of the IRS’s 2009 Offshore Voluntary Disclosure Program more than a year after the application deadline had passed. The report states that the policy change contravenes the IRS’s written pledge that “under no circumstances will a taxpayer be required to pay a penalty greater than what he would otherwise be liable for under existing statutes.”
  • An update on the IRS’s progress in developing and implementing a system to register and test federal tax return preparers.
  • A recommendation that Congress authorize the IRS to issue refunds in hardship cases during a government shutdown. When a government shutdown seemed imminent during the 2011 filing season, the IRS and the Treasury Department concluded that the IRS would have been legally barred from paying certain refunds or taking other actions that would benefit or minimize harm to taxpayers during the shutdown.
About the Taxpayer Advocate Service
The Taxpayer Advocate Service is an independent organization within the IRS.  TAS employees help taxpayers who are experiencing economic difficulties, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving problems with the IRS; and taxpayers who believe an IRS system or procedure is not working as it should.  If you believe you are eligible for TAS assistance, you can reach TAS by calling 1-877–777–4778 (toll-free).  For more information, go to or

If original return is efiled, so should be the revised return

Centralised Return Processing Scheme, 2011 is out vide NOTIFICATION NO.2/2012[F.NO.142/27/2011-SO(TPL)], DATED 4-1-2012 by which CBDT in exercise of the powers conferred by sub-section (1A) of section 143 of Income Tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes  specifies scheme for processing of returns of income. Here are major points of scheme
Receipt and Acknowledgment of Return of Income.—
There is no major change in mode of filing return by digital signature or without digital signature .Three important points to note however are
    1. The date of transmitting the data electronically shall be the date of furnishing the return if the Form ITR-V is furnished in the prescribed manner and within the period specified.
    2. In case Form ITR-V furnished after the prescribed time is rejected on account of it being unsigned, illegible, mutilated, bad quality or not as per specification, it shall be deemed that the return in respect of which the Form ITR-V has been filed was never furnished and it shall be incumbent on the person to electronically file the return of income again followed by submission of the new Form ITR-V.
    3. The Commissioner may call for fresh Form ITR-V in special circumstances, where the Form ITR-V earlier submitted cannot be considered for technical reasons.
Revised return of income.—
(1) If the original return of income is an electronically filed return, the revised return shall be filed through electronic mode only.
(2)  The Centre will process only the revised return and no further action will be taken on the original return if it has not already been processed.
Invalid or defective return.
(i)  The Commissioner may declare-
(a)  a return invalid for non-compliance of procedure for using any software not validated and approved by the Director General.
(b)  a return defective under sub-section (9) of section 139 of the Act on account of incomplete or inconsistent information in the return or in the schedules or for any other reason.
(ii)  In case of a defective return, the Centre shall intimate this to the person through e-mail or by placing a suitable communication on the e-filing website.
(iii)  A person may comply with the notice regarding defective return by uploading the rectified return within the period of time mentioned in the notice.
(iv)  The Commissioner may, in order to avoid hardship to the person, condone the delay in uploading of rectified return.
(v)  In case no response is received from the person in reply to the notice of defective return, the Commissioner may declare a return as not having been uploaded at all or process the return on the basis of information available.
Processing of Returns.—
(i)  The Centre shall process a valid return of income in the following manner, namely:-
(a)  the sum payable to, or the amount of refund due to, the person shall be determined after credit of such Tax collected at Source (TCS), Tax Deducted at Source (TDS) and tax payment claims which can be automatically validated with reference to data uploaded through TDS and TCS statements by the deductors or the collectors, as the case may be, and tax payment challans reported through authorised banks in accordance with the procedures adopted by the Centre in this regard.
(b)  an intimation shall be generated electronically and sent to the person by e-mail specifying the sum determined to be payable by, or the amount of the refund due to, the person; and
(c)  any intimation to the person to pay any sum determined to be payable shall be deemed to be a notice of demand as per the provisions of section 156 of the Act and all other provisions of the Act shall be applicable accordingly.
Rectification of mistake.—
(i)  With a view to rectifying any mistake apparent from the record under section 154 of the Act, the Centre, on its own or on receiving an application from the person, may amend any order or intimation passed or sent by it under the provisions of the Act.
(ii)  An application for rectification shall be filed electronically to the Centre in the format prescribed and will be processed in the same manner as a return of income-tax.
(iii)  Where the rectification order results in a demand of tax, the order under section 154 of the Act passed by the Centre shall be deemed to be a notice of demand under section 156 of the Income-tax Act.
(iv)  In case of error in processing due to an error in data entry or a software error or otherwise, resulting in excess refund being computed or reduction in demand of tax, the same will be corrected on its own by the Centre by passing a rectification order and the excess amount shall be recovered as per the provisions of the Act.
(v)  Where a rectification has the effect of enhancing an assessment or reducing the refund or otherwise increasing the liability of the person, an intimation to this effect shall be sent to the person electronically by the Centre and the reply of the person has to be furnished through electronic mode only.
10. Adjustment against outstanding tax demand.—The set-off of refund, if any, arising from the processing of a return, against tax remaining payable will be done by using the details of outstanding tax demand lying against the person as uploaded onto the system of the Centre by the Assessing Officer.
Appellate Proceedings.—
(i)  Where a return is processed at the Centre, the appeal proceedings relating to the processing of the return shall lie with Commissioner of Income-tax (Appeals) [CIT(A)] having jurisdiction over the jurisdictional Assessing Officer and any reference to Commissioner (Appeals) in any communication from the Centre shall mean such jurisdictional CIT (Appeals).
(ii)  Remand reports, giving effect to appellate order and any other reports to be furnished before the CIT (Appeals) shall be submitted by the Assessing Officer having jurisdiction as regards the person.
No personal appearance in the Centre.—
(i)  A person shall not be required to appear either personally or through authorised representative before the authorities at the Centre in connection with any proceedings.
(ii)  Written or electronic communication from such person or authorized representative in the format specified by the Centre in this respect shall be sufficient compliance of the query or clarification received from the Centre.
(iii)  The Centre may call for such clarification, evidence or document as may be required for the purpose of facilitating the processing of return and all such clarification, evidence or document shall be furnished electronically.
Service of notice or communication.—
(i)  The service of a notice or order or any other communication by the Centre may be made by-
  a.  sending it by post;
  b.  delivering or transmitting its copy thereof, electronically to the person sent by the Centre’s e-mail;
  c.  placing its copy in the registered electronic account of the person on the official website ; or
  d.  any of the modes mentioned in sub-section (1) of section 282 of the Act.
(ii)  The date of posting of any such communication on official website, e-mail or other electronic medium shall be deemed to be the date of service.
(iii)  The intimation, orders and notices shall be computer generated and need not carry physical signature of the person signing it.