FATCA Facts From Bloomberg & Accounting Today

14 May

Yul Brynner’s Tax Spat Augurs Rush to Give Up U.S. Passports

Don’t forget to read the stinging comments written by Accounting Today readers at the end of their and this article.
Zurich (May 12, 2014)
By Catherine Bosley
Bloomberg

(Bloomberg) Almost 50 years after Oscar-winning actor Yul Brynner gave up his passport at the U.S. embassy in the Swiss capital, the number of Americans relinquishing their citizenship jumped 47 percent in the first quarter.

Expatriates giving up their nationality climbed to 1,001 in the three months through March from 679 a year earlier, according to Federal Register figures released May 2. The number tripled to 3,000 in 2013 from the previous year, Internal Revenue Service data shows.

While Brynner, the star of “The Magnificent Seven,” renounced his American citizenship in Bern following a dispute with the IRS, tougher asset-disclosure rules being introduced in July are prompting more of the estimated 6 million Americans living overseas to weigh giving up their passports. The appeal of U.S. citizenship for expatriates dimmed further as 106 Swiss banks prepare to turn over account data on American clients to avoid prosecution for helping tax evaders.

“I feel caught in the battle between the government and the banks,” said John Annen, a 46-year-old American mathematician who has lived for more than decade in Switzerland. “The U.S. government is the biggest threat to my style of living.”The U.S., the only nation in the Organization for Economic Cooperation and Development that taxes citizens wherever they reside, stepped up the search for tax dodgers after UBS AG, Switzerland’s biggest bank, paid a $780 million penalty in 2009 and handed over data on about 4,700 accounts.
While Zurich-based Annen said his American citizenship makes him an “unwanted customer” of Swiss banks, he hasn’t considered relinquishing his passport.That makes him an exception. More than two-thirds of 400 U.S. expatriates surveyed in November by Zurich-based deVere Group said they had considered giving up their passports.Banks in Switzerland, the largest cross-border financial center with $2.2 trillion of assets, have discovered that thousands of their clients have dual U.S.-Swiss citizenship, obliging them to make voluntary disclosures, said Matthew Ledvina, a U.S. tax lawyer at Anaford AG in Zurich.
“Those banks have been checking through accounts and informing clients they have a big tax problem,” said Ledvina. “The number of people renouncing their citizenship will probably rise as the banks enforce U.S. tax rules.”

Risk Evaluation
The U.S. has allowed some Swiss banks seeking to avoid prosecution for handling undeclared American money a two-month extension until the end of June to deliver account data.

Some institutions reject certain American clients “for reasons of risk or cost evaluation,” said Sindy Schmiegel, spokeswoman of the Basel-based Swiss Bankers Association, which represents more than 300 banks.

Both UBS and Credit Suisse Group AG, the biggest Swiss banks, said they offer Americans checking and savings accounts. UBS also will grant mortgages, though not accounts for securities transactions.

While it’s fair for the U.S. to pursue tax evaders, the Foreign Account Tax Compliance Act, which will compel foreign banks to share the account details of American clients, is “causing a lot of problems,” said Marylouise Serrato, executive director of Geneva and Washington-based American Citizens Abroad, which campaigns for taxation based on residency. The more than 20,000 Americans living in Switzerland have faced particular challenges, given the country’s tradition of bank secrecy, she said.

FATCA Misunderstanding
The July 1 implementation of FATCA “is a reflection of the misunderstanding in Washington what it means to be an average American living and working overseas,” she said.

FATCA requires U.S. financial institutions to impose a 30 percent withholding tax on payments made to foreign banks that don’t agree to identify and provide information on U.S. account holders.

When Zurich’s Iowa-born mayor, Corine Mauch, gave up her U.S. passport last year, she said that while the move wasn’t motivated by U.S tax rules, she wouldn’t “miss the U.S. tax bureaucracy either.”

The U.S. Embassy in Bern declined to comment for this story.

Brynner, who won an Academy Award for his role in “The King and I,” renounced his American citizenship in 1965, saying he wanted to be closer to his family who lived in Switzerland, according to the 1989 biography—“Yul: The Man Who Would be King”—by his son, Rock Brynner.

Not Welcomed
It’s really simple to run afoul of the law,” said Martin Naville, chief executive officer of the Swiss-American Chamber of Commerce in Zurich. While most banks have some kind of offer for Americans, “you’re not really welcomed with opened arms,” he said.

The additional compliance costs for companies to ensure that Americans they hire are filing the correct U.S. tax returns and asset-declaration forms are $7,000 per person, according to Ledvina. For individuals, U.S. accounting costs are about $4,000 per year.

“For every person who has actually given up their citizenship there are 100 Americans abroad who are throwing up their hands at their tax situation,” said David Kuenzi, founder of Madison, Wisconsin-based Thun Financial Advisors. “It’s not about people not wanting to pay their taxes—it’s about the infuriating difficulty of paying your taxes.”

2 Comments

Seems a little silly that we continue to shoot ourselves in the foot.

We want to be fully engaged in the international marketplace, but then Congress passes utterly insane rules that cos t FAR more to our economy than we will ever realize in benefit.

And all just to score political points. Maybe we do need a Federal balanced budget amendment and constitutional term limits for members of Congress

Posted by: Douglas T | May 13, 2014 10:35 AM


It really angers me that they consider people living overseas tax evaders. They are just simply living in or visiting another country and may not even know they are supposed to be reporting all of their worldwide income or bank accounts to the US, which is utterly ridiculous. I have a few clients that go to other countries where their families live or they visit frequently and have accounts there when they travel consisting of after-tax income. When they failed to notify the IRS of those bank accounts they were treated like criminals and paid insane penalties just for not reporting the account. There was no tax on this money due, just the fact that they didn’t check the box on Schedule B. They came to my firm to get help and the agents weren’t even sure of the all the rules and regulations they were supposed to follow.

Posted by: turtlefreak4 | May 13, 2014 9:00 AM

California Banker Charged with Helping U.S. Taxpayers Conceal Secret Israeli Bank Accounts

7 May

Just like I said in the immediately preceding article, it is the Israelis that work and reside in the United States of America who are the tax evaders or helping others be tax evaders. It is NOT the American Expats who work and reside in Israel. And another Israeli resident of California has been indicted by the Justice Department as detailed here in their press release (note that we have it from a reliable source that the bank involved was Mizrahi Tefahot):

Shokrollah Baravarian, of Beverly Hills, California, was charged today in the U.S. District Court for the Central District of California with conspiracy to defraud the United States, the Justice Department and Internal Revenue Service (IRS) announced.

 

According to the indictment, Baravarian, a former senior vice president at the Los Angeles branch of a bank headquartered in Tel Aviv, Israel, conspired to conceal the existence of undeclared accounts owned and controlled by U.S. customers in Israel.  The indictment alleges that these accounts were concealed from the IRS by opening them under pseudonyms, code names and the names of nominee entities set up in the British Virgin Islands and the island of Nevis.

 

“This charge results from an ongoing and extensive investigation into the use of undeclared bank accounts in Israel, and demonstrates the department’s determination to find and prosecute those who help U.S. taxpayers evade taxes through offshore accounts located anywhere in the world,” said Deputy Attorney General James M. Cole.

 

“IRS-Criminal Investigation and Tax Division prosecutors have been investigating the use of undeclared bank accounts globally, and charges have been brought against not only the U.S. taxpayers with undeclared Israeli bank accounts but also those who facilitate the hiding of assets and income abroad,” said Assistant Attorney General Kathryn Keneally for the Tax Division.  “Whether it be Israel, Switzerland, the Caribbean or elsewhere, the Justice Department is finding the hiding places and is committed to prosecuting tax cheats.”

 

“The defendant assisted others to hide the true ownership of offshore bank accounts through the use of code names and nominee entities,” said Chief of IRS-Criminal Investigation Richard Weber.  “Our special agents unraveled the complex financial transactions used to disguise the funds in the undeclared accounts.  Those who help others commit tax evasion risk prosecution and substantial monetary penalties.”

 

The indictment further alleges that Baravarian assisted U.S. customers in secretly accessing the funds in their undeclared accounts by obtaining back-to-back loans from the Los Angeles branch of the bank.  According to the indictment, a back-to-back loan was a loan that was secured by funds in an undeclared account in Israel and issued by the Los Angeles branch to a U.S. customer.  Baravarian is alleged to have helped conceal the fact that U.S. customers were using their own funds as collateral by purposely not keeping copies of loan-related documents in the files at the Los Angeles branch.  These documents included Israeli account information and pledge agreements used to secure the loans.  As detailed in the indictment, some U.S. customers obtained back-to-back loans from the Los Angeles branch by transferring funds to Israel from other foreign countries, including Switzerland and China.

 

The indictment further alleges that a banker in Israel would periodically travel to Los Angeles and meet with U.S. customers to discuss their account statements.  Prior to making these trips, the banker would redact the names of the U.S. customers reflected on the account statements.

 

Baravarian is the latest in a series of defendants charged in the U.S. District Court for the Central District of California with conspiring to defraud the United States in connection with using undeclared bank accounts in Israel to obtain back-to-back loans in the United States.

 

U.S. citizens and residents who have an interest in, or signature or other authority over, a financial account in a foreign country with assets in excess of $10,000 are required to disclose the existence of such account on Schedule B, Part III, of their individual income tax returns and on a Report of Foreign Bank and Financial Reports filed with the U.S. Treasury.

 

If convicted, Baravarian faces a potential maximum prison term of five years and a maximum fine of $250,000.  The charge contained in the indictment is only an allegation. The defendant is presumed innocent and it is the government’s burden to prove guilt beyond a reasonable doubt.

 

The case was investigated by special agents of IRS-Criminal Investigation.  Senior Litigation Counsel John E. Sullivan and Assistant Chief Elizabeth C. Hadden of the Tax Division are prosecuting the case with the assistance of Assistant U.S. Attorney Sandra R. Brown, Chief of the Tax Division of the U.S. Attorney’s Office for the Central District of California.

 

Additional information about the Tax Division and its enforcement efforts may be found at the division website .

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Tax Division

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