Judge: No Day Trading When You Owe The IRS

A tax court judge ruled that the IRS could refuse to settle the back tax liability of a man who was hoping to day-trade his way out of debt. The lost investment was seen as a dissipated asset, causing the IRS to deny his offer in compromise.

Forbes.com reports:

Larry E. Tucker owed nearly $15,000 in back taxes for 1999, 2000, 2001 and knew he would have a balance due for 2002 when he received an advance in January 2003, for freelance web design work he would be doing later that year. So he decided (he told the IRS and the court), that he’d try to pay off both the IRS and his other creditors by day-trading his way to profits.

He deposited $23,700 in an E*Trade account and later, in response to margin calls, put in another $21,000. By the time Tucker threw in the towel on day trading in April 2003, he had lost $22,645 of his stake. He used what was left mostly for basic living expenses that year.

Later, when Tucker tried to settle his growing tax debt through what is known as an offer-in-compromise (OIC), the IRS turned him down on the grounds that he had “dissipated” through day trading assets he could have used to pay his tax bill in full. In his opinion here, Tax Court Judge David Gustafson concluded that Tucker’s “foray into day trading was purely speculative” and that the IRS was within its rights to deny the OIC.

Carlton M. Smith, Tucker’s attorney, said Wednesday morning that he and Tucker plan to appeal both this week’s decision and an earlier July 2010 Gustafson decision in the case which rejected a constitutional challenge to the way the IRS collections appeals officers who heard Tucker’s case were appointed.

More here

Wesley Snipes Seeks Supreme Court Review of His Tax Convictions

Although he's currently serving a three-year sentence in prison for willful failure to file his tax returns, Wesley Snipes has filed a certified petition with the U.S. Supreme Court. According to the TaxProf Blog the petition raises two issues:

Is an accused person deprived of the right under Article III and the Sixth Amendment to be tried only by a jury of the community where venue is proper, when factual questions determinative of whether venue has been correctly laid are determined solely by a jury selected in the place challenged by the defendant as incorrect?

Where venue is a contested factual issue in a criminal trial, does the government bear a burden of proof beyond a reasonable doubt or only by a preponderance of the evidence?

I don’t think the Court will be terribly anxious to hear the case…

Source: TaxProf

Breast Pump Buyers Gain Tax Advantage in IRS Ruling

Good news for thousands of nursing mothers across the country!

From Bloomberg.com:

Breast pumps and associated supplies will be considered medical equipment eligible for the same tax breaks as contact lens solution, bandages and prescription drugs, the Internal Revenue Service said.

U.S. taxpayers will be able to seek reimbursement for the cost of pumps through pretax flexible spending arrangements and health savings accounts. As with other medical expenses, such costs can be deducted if total medical expenses exceed 7.5 percent of adjusted gross income.

As a result of last year’s health care law, that threshold will increase to 10 percent in 2013.

“Like obstetric care, they are for the purpose of affecting a structure or function of the body of the lactating woman,” the IRS said in an announcement released today.

Breast-feeding advocates, including the American Academy of Pediatrics, had been encouraging the IRS to make this ruling.

Manufacturers

Manufacturers of breast pumps include Amsterdam-based Koninklijke Philips Electronics N.V., which makes the Avent brand. Energizer Holdings Inc. of St. Louis makes breast pumps under its Playtex brand.

Read more here

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IRS Targets Income Tricks

Tax avoidance: Legal. Tax evasion: illegal. Seems pretty clear, but some classic “tricks” to reduce tax liabilities are coming under fire. The most recent: funneling your wages through an S Corporation to avoid payroll taxes.

From the Wall Street Journal:

There's a saying: Pigs get fed and hogs get slaughtered. The Internal Revenue Service surely hopes that includes tax hogs.

That is the message of a recent U.S. district court case won by the IRS against David Watson, a CPA in West Des Moines, Iowa. At issue: a common tax-cutting maneuver available to the owners of millions of closely held businesses.

The case, David E. Watson P.C. v. U.S., revolved around Mr. Watson's low pay as the sole owner and shareholder of a so-called S Corporation. Such companies, often called "Sub-Ss" after the subchapter of the tax code governing them, is a popular choice of entity for private firms. Unlike C corporations, Sub-Ss have no more than 100 shareholders, and they pass profits to owners without an extra layer of tax. There are nearly 4 million Sub-Ss in the U.S. today.

Mr. Watson's Sub-S was, in turn, one of four principals in LWBJ, an accounting firm. According to the decision, the firm made profit distributions of $203,651 and $175,470 to Mr. Watson through his Sub-S for 2002 and 2003, respectively, the years in question.

Mr. Watson, who had a graduate degree in tax and 20 years' experience, received only $24,000 of salary for each of those years, far less than the $40,000 a year earned by recent graduates in accounting with no experience, according to one expert for the IRS.

Read more here

Tax Court Disagrees with IRS on Loss Claim

After a ten year long battle, the U.S. Tax Court has reversed an IRS decision to deny a tax loss claimed by a company that bought a manufacturing plant from Nortel. The court issued is decision earlier this month (November 8).

According to CFO.com, the case involved a so-called basis bump transaction, designed to provide a U.S. taxpayer with a stepped-up basis in assets without the usual cost associated with such a phenomenon. Indeed, the cost is a U.S. tax imposed tied to the transferor of the assets.

In a case of first impression, the Tax Court ruled that such a transaction ought to be "respected" for tax purposes. The case facts are as follows: On May 28, 1998, Canadian Parent (CP) and Northern Telecom Inc. (Nortel) executed an asset purchase agreement with respect to a property owned by Nortel, namely, the Creedmoor manufacturing facility. Pursuant to the agreement, CMAC-I, a Canadian subsidiary of CP, was authorized to purchase the inventory of the Creedmoor facility. On July 2, 1998, CMAC-I, using working capital and borrowed funds, paid Nortel $12.1 million for the inventory. On the same date, Nortel executed a bill of sale and assignment providing for the sale of its rights and title to — and interest in — the inventory to CMAC-I.

On July 7, 1998, CMAC-I borrowed $5.4 million and CMAC-GP, a CP affiliate, borrowed a total of $46.2 million. On that same date, CMAC-I pledged the inventory of the Creedmoor facility as security for payment of the $51.6 million in liabilities (incurred by CMAC-I and CMAC-GP).

Billionaire Julian Robertson Notches Tax Win For New York City Non-Residents

From Forbes.com:

A divided three-member New York State Tax Appeals Tribunal has upheld an administrative judge’s finding that billionaire hedge fund pioneer Julian H. Robertson Jr. wasn’t a resident of New York City in 2000, saving him $27 million in tax.

In a dissent, Tax Commissioner Carroll R. Jenkins said he feared the decision would create “confusion and mischief in future cases” by improperly shifting the burden onto tax collectors to prove Robertson was in the city on certain days, rather than requiring Robertson to “demonstrate by clear and convincing evidence that he was not within the City.”

The appeals decision and the $27 million hinged on Robertson’s whereabouts on just two days. According to the previously unreported 62-page decision issued last month, before taking an apartment in the city in 1996, Robertson was warned by advisors not to spend more than 183 days in the city, or he’d be taxed as a city resident—even though his legal domicile was a 10 acre estate in Locust Valley, Long Island. Being a resident would make all his worldwide income subject to the city’s stiff levy, now 3.88%. Robertson assigned his long time executive assistant to track his days and warn him when he was using up days too quickly or nearing the 183-day limit.

In 1998 and 1999, while Robertson’s late wife, Josephine, was being treated for cancer in New York City, he spent more time there and willingly paid city taxes. (She died this past June from a recurrence of breast cancer.) But despite his public support for the estate tax , Robertson, now 78, clearly didn’t’ want to pay New York City any tax he could legally avoid. He maintained he was in the city for only 183 days in 2000 and so shouldn’t be taxed as a resident that year. (Tiger Management, Robertson’s firm, has its offices on Park Ave. But in 2000, Robertson was closing down his own hedge funds and didn’t have to be at the office every day.)

Tax Court Denies Prof's Claimed Deductions for Research

Recently the U.S. Tax Court denied a math professor from The City University of New York an education related tax deduction. The professor attempted to write off $15,397 in expenses related to research and writing activities. However, the judge felt he failed to adequately substantiate his deductions. Check out the following snippet of the ruling courtesy of the Tax Prof Blog, or click here for a PDF of the court’s ruling.

Petitioner has, potentially, two trades or businesses. He is employed as a professor of mathematics, and he is engaged in research and writing on mathematical issues. He "wears two hats" but the "hats" are so similar in appearance that it is difficult to tell the difference between them. Because of this circumstance, it is particularly important that petitioner distinguish his research and writing activity from his activity as college professor as well as from his personal activities. ...

Petitioner's testimony is reasonable; however, he has failed to provide the Court with any adequate records or sufficient evidence to corroborate his own testimony. ... Petitioner has failed to show that he is entitled to Schedule C deductions in excess of those respondent allowed. Because petitioner has failed to adequately substantiate his deductions, the Court need not address the profit objective, trade or business, and startup issues respondent raised in his pretrial memorandum.

Shpilrain v. Commissioner, T.C. Summ. Op. 2010-133 (Sept. 9, 2010).

New Orleans Saints Dispute IRS Claims

As a result of a report from Forbes magazine accusing the New Orleans Saints of avoiding income taxes on an $8.5 million payment from the state of Louisiana, the team has asserted in tax court that they are not guilty of tax avoidance. According to USA Today, the team’s lawyers claimed the payment was nontaxable "working capital" and was part of 10 years of "inducement payments" given to the team.

Forbes reported that the lawsuit claimed the money was intended to help the team "acquire additional and higher-priced player contacts" to make the team "more competitive in the NFL."

The Saints reached a long-term deal to remain in the Superdome in 2009.

Continue reading at USA Today.com…

Tax Court Denies Charitable Deduction for $200 Cash Given to Panhandlers & $29k of Stuff Donated to Goodwill

Last Thursday, the US Tax Court ruled on Roberts v. Commissioner and denied a taxpayer’s attempt to claim a charitable deduction for $200 cash given to panhandlers and $28,655 of household items donated to Goodwill. You can check out a section of the opinion below, courtesy of the Tax Prof, or click here for the full PDF.

For 2005 petitioner claimed, on Schedule A, Itemized Deductions, a $200 cash charitable contribution, which he described as donations to panhandlers and the Salvation Army, and $28,655 of noncash charitable contributions. Included with his 2005 Federal income tax return was a self-prepared substitute Form 8283, Noncash Charitable Contributions, in which petitioner claims to have contributed more than 450 items of property consisting primarily of used clothing, but also including, among other things, towels, bedsheets, books, costume jewelry, children's toys, and glass lamps. Petitioner's descriptions of the items of property allegedly contributed to charity are vague and include self-assigned estimates of their values. Petitioner also provided copies of five receipts from Goodwill Industries (Goodwill) dated January 9, April 13, May 18, September 16, and October 1, 2005. Only one of the receipts bears a signature indicating that the donated items were received by Goodwill, and the receipts provide nothing more than vague references to the items allegedly donated; e.g., "men's boots", "ladies' clothes", "men's clothes", "boy's clothes", "women's clothing", and "4 bags of clothes". ...

With respect to the claimed $200 of cash contributions to charity, petitioner has failed to offer anything more than his self-serving testimony that he made various donations to panhandlers and the Salvation Army. ... Petitioner did not offer any canceled checks, receipts, or other reliable evidence to substantiate the claimed $200 of cash contributions to charity. Accordingly, we sustain respondent's determination to deny to petitioner a deduction for the claimed $200 of cash contributions to charity.

[P]etitioner has neither attached to his Federal income tax return nor proffered an appraisal summary to establish the values of the items allegedly donated. ... [T]he copies of the five receipts from Goodwill neither reconcile with petitioner's substitute Form 8283 nor provide anything more than vague descriptions of the items donated. Accordingly, we find that petitioner has failed to establish, by proper and adequate substantiation, entitlement to a charitable contribution deduction for the noncash items he claims to have donated to charity. We therefore sustain respondent's determination to deny petitioner a deduction for noncash contributions to charity.

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Informant Says He Will Assist Further in Tax Case Against Swiss Bank

Bradley Birkenfeld, a former UBS banker and informant in the UBS case is now saying he can further assist in the tax case against the bank. He was slated to start a three year prison sentence early in January, but is reportedly hoping that additional cooperation with the government will reduce that sentence.

As this article on NYTimes.com explains, Birkenfeld was sentenced in August, but filed a new postponement request earlier this week with a federal district court in Florida.

The filing also requested a hearing to reconsider the 40-month sentence imposed on Mr. Birkenfeld on Aug. 21.

Prosecutors described Mr. Birkenfeld as the man most responsible for igniting an investigation into rich Americans’ use of secret Swiss bank accounts to avoid taxes. Partly because of Mr. Birkenfeld’s disclosures, UBS has agreed to disclose to the United States the names of 4,450 wealthy Americans suspected of hiding assets and dodging taxes in secret accounts.

The United States Treasury loses an estimated $100 billion a year to offshore tax cheats.

1st UBS Client Charged By US Gets Probation In Tax Case

The results are in for the first U.S citizen to be tried in a UBS offshore banking case. Steven Rubinstein – an accountant from Florida – was ordered to pay a $40,000 criminal fine and sentenced to 3 years of probation after pleading guilty in court.

The sentence was lighter than the recommendation of prosecutors, who sought a one-year prison term for Rubinstein. He faced a possible sentence of 18 to 24 months under advisory sentencing guidelines.

Rubinstein was sentenced in a Florida federal court for filing a false tax return. Prosecutors charged him in April and he pleaded guilty in June.

Prosecutors said Rubinstein communicated with UBS bankers from 2001 to 2008 about the purchase and sale of securities worth more than 4.5 million Swiss Francs. They also said Rubinstein repatriated roughly $7 million into the U.S. to buy property and build a home in Boca Raton, Fla.

Continue reading at WSJ.com…

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Joe Francis to Use "Deductions Gone Wild" Defense in Tax Evasion Trial

According to the Smoking Gun, via the Tax Prof Blog, Joe Francis, founder of the Girls Gone Wild video series, is going to use a slide show to try to convince a jury in his upcoming tax evasion trial that various expenses are deductible as business expenses. Check out the following explanation on his defense, or head over to the Tax Prof Blog to see pictures of the slides that Francis intends to use.

As part of Joseph Francis's opening statement in U.S. District Court in Los Angeles, his defense team will show a series of slides (or "opening statement demonstratives") that link the "Girls Gone Wild" boss and his firm to movie stars like Jennifer Aniston, Jack Nicholson, Vince Vaughn, and Orlando Bloom. A copy of the slide presentation was filed last week in federal court by Francis's defense team.

Prosecutors allege that Francis, whose trial is set to open in mid-October, illegally sought to conceal income in offshore companies and deducted millions in phony business expenses, including costs incurred at Casa Aramara, Francis's beachfront Mexican home. One defense slide ... includes photos of Aniston, ... Bloom, and Vaughn, who are described as "celebrity guests" at the Punta Mita property. It appears that Francis, 36, will argue that the estate was an investment property frequently leased to wealthy tenants and, as such, certain business tax deductions were warranted.

[One] slide will helpfully inform jurors that Francis is "in Business of Sex," while another provides a "Marketing 101" overlook at the "Girls Gone Wild" soft-core franchise. The defense slide show will also attempt to draw parallels between Francis's business and Hugh Hefner's Playboy empire.

One Small Step for Federal Taxation, One Giant Leap for Same-Sex Equality

Earlier in the week the Tax Prof published a new blog entry explaining the recent revision to Section 2702 of the IRS code to apply to same sex couples. The article quotes the conclusion from a recent publication by Matthew Fry titled “One Small Step for Federal Taxation, One Giant Leap for Same-Sex Equality: Revising Section 2702 of the Internal Revenue Code to Apply Equally to All Marriages.” Check out the quote below.

This Comment suggests the revision of one specific provision of the federal wealth transfer taxation scheme as one small step in the direction of equality for all married couples, regardless of sexual orientation. It is true that this suggested change would be an economic setback for same-sex couples that currently use GRITs as a means of transferring wealth within their economic unit while avoiding tax liability. In the grand scheme of equality, however, many same-sex taxpayers might be grateful for the hint of federal recognition that has, for so long, been denied to their marriages and civil unions. Eventually every provision of the Internal Revenue Code should be revised to guarantee equal treatment of same-sex couples based upon the foundational principles of horizontal equity, taxation of the economic unit, and a recognition of--and taxation based upon--economic reality rather than labels and politics. Revision of the Internal Revenue Code in pursuit of legislators' guiding principles will result in a tax code with integrity, a code that treats all taxpayers under it equally and is not influenced by the political zeitgeist.

For more information on LGBT tax issues check out these two blog entries I published earlier this year: Taxes 101 For Domestic Parents & Same-Sex Couples and Top 9 Tax Tips for the LGBT Community.

Justice Sonya Sotomayor: The Future of Taxes in the United States

Over the past week, President Obama’s first nomination to the U.S. Supreme Court, the Honorable Sonya Sotomayor, has been making headline after headline as she moves through the nomination process. As such, I thought it would be a good time to take a look at some of her tax related opinions, and predict how the future of taxation in the United States might change if she were to become a Supreme Court Justice.

Lack of Tax Related Cases

Unfortunately the Supreme Court does not hear many cases on tax issues, which makes predicting how a new Justice will influence the court all the more difficult.

According to the Tax Girl, whom I follow on Twitter, during the term beginning in October 2007, the Supreme Court only agreed to hear five tax-related cases. They are all listed below, along with a brief note on the issue. As you can see, none of them were very note worthy.

• Kentucky Department of Revenue v. Davis, No. 06-666 (state bond issue)
• Knight v. Commissioner, No. 06-1286 (trust administration fees)
• CSX Transportation Inc. v. Georgia State Board of Equalization, No. 06-1287 (railroad property valuation)
• MeadWestvaco Corp. v. Illinois, No. 06-1413 (state gain issue)
• Boulware v. United States, No. 06-1509 (diversion of corporate funds to a shareholder of a corporation)

Most Cited Tax Case

Unfortunately, Judge Sotomayor has not written extensively on tax law. In fact, there is really only one tax related case that she has drafted an opinion. Although the case does not provide enough information to determine how she would decide on future issues, it can provide some hints.

In the case of Knight vs. Commissioner, 467 F.3d 149 (2006) Sotomayor’s court unanimously upheld a lower tax court ruling that said some fees paid by a trust are only partially tax deductible. Although they upheld the decision, the rejected the lower court’s reasoning and Sotomayor authored the deciding opinion.

The reason this case has gotten so much attention was because the U.S. Supreme Court heard the appeal, and rejected Sotomayor’s reasoning. They did unanimously uphold the decision, but Chief Justice Roberts noted that Sotomayor’s approach "flies in the face of the statutory language." I also found it especially interesting that one of the main areas the two courts disagreed on was what the term “would” meant under the statute in questions.

Other Relevant Cases

Although she has only authored an opinion on one tax related cases, Justice Sotomayor has ruled on a few other related cases. The first of which was Dabit vs. Merrill Lynch, 395 F.3d 25 (2005), where she overturned a lower court decision and allowed certain types of fraud lawsuits to be settled in state court, rather than federal. However, the U.S. Supreme court overturned the decision claiming that the federal government did have interest in overseeing such cases.

Empire Healthchoice Assurance, Inc. vs. McVeigh, 396 F.3d 136 (2005) was another interest case that has been discussed frequently over the past week. In it Sotomayor ruled against a health insurance company that sued the estate of a deceased federal employee who had won a settlement form a separate civil case.

U.S. Supreme Court Justice Sotomayor

Although it is impossible to predict how Justice Sotomayor would rule in a case as a Supreme Court Justice, we can make some predictions based on her history. According to the Congressional Research Service, Sotomayor’s “approach as an appellate judge has been an adherence to the doctrine of stare decisis,” meaning she has a tendency to uphold concepts decided by former justices. The report also found that her approach was “in line with the judicial philosophy of Justice Souter,” the judge she is nominated to replace.

From looking at the findings of the Congressional Research Service, and examining her history, it is quite difficult to determine how taxation in the United States would change if Sotomayor’s nomination was accepted. However, based on her decision against health care and investment companies, it seems likely that Sotomayor might be somewhat progressive in her approach to the tax code. Yet, with the Supreme Court only hearing a handful of select cases per year she might never even get the opportunity to rule on a meaningful tax case.

Nomination as a Distraction?

As the nomination hearings continue to make headlines, and media outlets debate Sotomayor’s use of the phrase “Wise Latina,” some bloggers are beginning to think that the Obama Administration and Democratic leaders are using the media fixation as an opportunity to “sneak through” a hefty tax increase. The bill in question was proposed in the House of Representatives as a way to generate funds to pay for health care reform. The 1% increase on families making $350,000 or more per year, and up to 5.4% increase on those making over $1 million would generate an estimated $540 billion in additional federal revenue. Although passing legislation while the American media focuses on another issue is a common tactic used in Washington, I hope it is not a sign of things to come for Justice Sotomayor and the Obama Administration.

Tax Court Rejects Gay Activist's Attempt to File Joint Return With Long-Term Partner

Earlier today, I came across this entry on the Tax Prof Blog about a recent ruling from the U.S. tax court against a California gay rights activist. According to a post from October of 2008, Merrill “filed papers with the U.S. Tax Court objecting to the Defense of Marriage Act (DOMA) based on the 1st Amendment Establishment Clause of the U.S. Constitution. He objects to not getting all the same benefits as other married couples” under the current tax code.

On Monday the Tax Court dismissed Merril’s claims, saying “we must decide whether petitioner, who was unmarried but in a committed relationship with another man during the years at issue, is entitled to married filing joint status. We hold that he is not.”

Petitioner and Mr. Boyle lived in North Carolina during the years at issue. They participated in a commitment ceremony in 2004, but North Carolina did not recognize same-sex marriages. Petitioner and Mr. Boyle were legally married in 2008 after moving to California.

Petitioner failed to file a tax return for either of the years at issue. Respondent contacted petitioner about filing income tax returns. Petitioner responded with a letter stating that he was not evading taxes, but refused to pay taxes as an act of civil disobedience advocating same-sex marriage equality. Respondent prepared substitutes for returns for the years at issue and issued deficiency notices to petitioner. In the substitutes for returns, respondent determined petitioner's filing status to be single. Petitioner resided in North Carolina when he filed the first petition regarding his return for 2004, and he resided in California when he filed the second petition regarding his return for 2005.

In both petitions, petitioner argued that he must be accorded married filing joint status, rather than single status, because of his long-term domestic partnership with Mr. Boyle. Respondent filed motions for partial summary judgment on whether petitioner is entitled to married filing joint status for the years at issue. Respondent argues that petitioner is not entitled to this status because he was not married in the years at issue and he did not file a joint return for those years. We agree and discuss each of respondent's arguments in turn.

Petitioner admits he was not legally married for either of the years at issue but argues, nonetheless, that he should be allowed to file joint returns because he was in a long-term committed relationship with his gay partner and North Carolina did not recognize same-sex marriage. Despite petitioner's argument, a taxpayer must file a joint return with his or her spouse and it must be signed by both spouses to claim the married filing joint status.

We conclude that respondent properly determined single filing status for petitioner. Accordingly, we hold that petitioner is not entitled to married filing joint status for the years at issue.

To read the court’s full decision check out Merrill v. Commissioner, T.C. Memo 2009-166 (July 13, 2009).

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UBS Tax Case Could Backfire On U.S.

Some experts feel the high profile case of the US vs. UBS could hurt its global economic standing, backfiring their original plan. Check out the following article from Reuters.com discussing the issue.

U.S. banks and the U.S. economy could suffer as a result of the high-profile tax evasion case pitting the Internal Revenue Service against UBS AG, supporters of the Swiss bank said in a federal court filing in Miami.

In a joint filing on Friday, five business and banking groups urged Federal District Court Judge Alan Gold to reject IRS demands that UBS (UBSN.VX) (UBS.N) reveal the names of 52,000 Americans suspected of using the bank to hide nearly $15 billion in assets and evade U.S. taxes.

Echoing a similar filing last month by the Swiss government, the petitioners said any exchange of confidential banking information should be handled through existing legal treaties rather than the courts.

The petitioners were led by the Swiss Bankers Association and Economiesuisse -- an umbrella group representing powerful Swiss industry, trade and economic associations.

They also argued that the IRS was seeking to embark on a "fishing expedition" and had no international legal standing to use a tool known as a John Doe summons to investigate suspected tax fraud by individuals whose identities and possible legal transgressions were unknown.

The IRS action violates both Swiss sovereignty and the framework of international law, the court filing says.

"Disregarding established treaty protocols and imposing conflicting obligations upon multinational enterprises, as the IRS urges, also would encourage courts in other jurisdictions to ignore established treaty protocol in taking similar measures against U.S. banks, enforcing subpoenas and similar broad-based information demands served on their overseas offices," it warned.

"Such a result not only would erode the primacy of U.S. law and treaty protocol, but could encourage non-resident aliens and foreign entities to withdraw significant deposits from U.S. based institutions to the detriment of the U.S. economy," it added.

"Further, imposing obligations on foreign businesses to violate their home country laws would discourage such businesses from entering the U.S. market."

The court filing offered no estimate of what it said could be "significant capital outflows" from U.S. financial centers, as one unintended consequence of the crackdown on UBS.