Another Swiss Bank Bites The Dust

This was released by the Office of Public Affairs of the Department of Justice and can be viewed online and is reproduced here.

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Finter Bank Zurich AG Reaches Resolution under Department of Justice Swiss Bank Program

The Department of Justice announced today that Finter Bank Zurich AG (Finter), located in Zurich, Switzerland, reached a resolution under the department’s Swiss Bank Program.

The Swiss Bank Program, which was announced on Aug. 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States.  Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.  Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Under the program, banks are required to:

• Make a complete disclosure of their cross-border activities;
• Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
• Cooperate in treaty requests for account information;
• Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
• Agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and
• Pay appropriate penalties.

Banks meeting all of the above requirements are eligible for a non-prosecution agreement.

According to the terms of the non-prosecution agreement signed today, Finter agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay a $5.414 million penalty in return for the department’s agreement not to prosecute Finter for tax-related criminal offenses.

Finter was founded in 1958 in Chiasso, Switzerland, and has a branch office in Lugano, Switzerland.  Since Aug. 1, 2008, Finter has maintained 283 U.S.-related accounts with an aggregate maximum balance of approximately $235 million.

Since its establishment and continuing through at least October 2011, Finter, through its managers, employees and others, aided and assisted U.S. clients in opening and maintaining undeclared accounts in Switzerland and concealing the assets and income they held in these accounts from the Internal Revenue Service (IRS).  After August 2008, when Swiss bank UBS AG publicly announced that it was the target of a criminal investigation by U.S. tax authorities, Finter accepted accounts from U.S. persons exiting other Swiss banks.

Finter provided services that allowed U.S. clients to eliminate the paper trail associated with the undeclared assets and income, including “hold mail” services and numbered and coded accounts.  In addition, Finter assisted clients in using sham entities as nominee beneficial owners of undeclared accounts, solicited Forms W-8BEN that falsely stated under penalties of perjury that the sham entities beneficially owned the assets in the undeclared accounts, and provided cash cards and credits cards linked to the undeclared accounts.

In resolving its criminal liabilities under the program, Finter encouraged U.S. accountholders to come into tax compliance and participate in the IRS Offshore Voluntary Disclosure Program.  While Finter’s U.S. accountholders who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of Finter’s non-prosecution agreement, its noncompliant U.S. accountholders must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

Acting Assistant Attorney General Caroline D. Ciraolo of the Tax Division thanked the IRS and in particular, IRS-Criminal Investigation and IRS’s Large Business and International Division for their substantial assistance, as well as Senior Litigation Counsel John E.  Sullivan and Trial Attorney Mark Kotila of the Tax Division, who served as counsel on this matter, and Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer of the Tax Division.

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

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Tax Division

Download Finter Bank Zurich AG NPA and SOF (24.14 MB)

Updated May 15, 2015

Time to Debunk the Myth of the Tax-free Expat

This was written by Mandi Woodruf, a Yahoo Finance writer. It is a good overview of the ins and outs of taxes for expats.

Many people dream of what it might be like to pack up everything and move abroad. Currently, there are more than 6.3 million Americans who have done just that, keeping their U.S. passport but building a new life in one of more than 160 countries around the world.

And recently, a growing wave of residents are taking the biggest plunge of all, giving up their American citizenship altogether. The number of annual renunciations has increased ten-fold since 2006, with a record 3,000 Americans giving up their U.S. passports in 2013 alone, accoding to data released by the Treasury Department this week.

But if their primary motivating factor for living abroad is to avoid taxes, Americans might be disappointed. Unless you’ve completely renounced your citizenship, non-U.S. residents abroad still have to file federal income taxes, whether or not their income is coming from the States, and even if they’re already paying foreign income taxes.

As it stands, people earning less than $97,600 in foreign income are exempt from paying U.S. income taxes. That does not, however, mean they don’t have to file taxes. And that’s where the confusion begins for many expats.

“It’s very difficult to understand why you have to file when you don’t have to pay any taxes,” says Ronald Marini, a tax attorney based in Miami who deals with tax compliance. “You could be earning $90,000 in Spain, paying income taxes there and doing nothing wrong. If you forget to file taxes in the U.S. or you got confused, even with your exemption, you are still on the hook for penalties for failing to file.”

Trouble is there has been so little guidance for expats regarding their obligation to file that many have gone years without answering to Uncle Sam.

In the meantime, the IRS has spent the last five years stiffening regulations to smoke out tax evaders, consequently making life even harder for those Americans who have simply ignored their taxes because they assumed they were exempt.

The myth of the tax-free expat

Failing to file federal taxes is one of the most common — and costly — mistakes that Americans who move outside of the country make.

IRS penalties start at $10,000 (if the IRS decides wage earners weren’t willfully neglecting to file) and go up to $100,000, or 50% of your total foreign account balances if they decide wage earners failed to file without reasonable cause.

But even if Americans living abroad are current with their taxes, the cost of filing itself can be steep.

Filing even the most basic tax return from overseas can cost anywhere from $3,000 to $7,500, Marini says, depending on whether they hire a tax preparer or an attorney to help guide them through the process.

And new tax regulations will mean even more paperwork — and billable hours — for taxpayers trying to stay on the IRS’s good side.

New tax laws have expats worried

It’s no secret that a subset of uber-rich Americans enjoy sheltering their some of their wealth in a handful of overseas tax havens.

To crack down on tax evasion, the U.S. established the Foreign Accounts and Tax Complicance Act (FATCA), to take effect this summer, which will make it tougher to hide from the IRS. No doubt the new regs will help the agency catch a lot of bad guys, but it will also complicate matters even more for law-abiding Americans living abroad.

In addition to reporting their regular income on a tax return, they have to file separate forms detailing each of their financial accounts holding $10,000 or more. And for the first time, foreign banks themselves will have to report any bank accounts held by Americans to the IRS, making it harder for tax evaders to slip through the cracks.

We spoke with an expat who owns a small business in Costa Rica, who told us about the nightmare time she’s had sorting out her taxes. “Our accountants in the U.S. and here are still trying to figure out how to interpret all of the new tax codes and how we will be impacted by them,” the business owner said. “The rules change a lot with regards to those of us abroad, and the information and misinformation is hard for us to sort through on our own.” (She spoke with us, but preferred to remain anonymous for fear of drawing unwanted attention from the IRS.)

Marylouise Serrato, executive director of American Citizens Abroad, an advocacy group, says FATCA goes beyond targeting tax cheats — it inconveniences U.S. citizens who have simply moved abroad for work or family reasons.

“Our community is made up of people who are very middle class, very average and these people are getting stuck in a difficult situation,” she says. “They don’t want to have these really onerous penalties [for making a mistake on their tax return] … but they can’t afford to pay some professional to do it either.”

Getting right with Uncle Sam

We spoke with half a dozen expats for this article, and all were concerned about drawing the IRS’s attention, and so declined to speak on the record. But one central theme emerged in each conversation: those who hadn’t been up to date with filing their U.S. taxes desperately wanted to know how to get right with the IRS without getting hit with exorbitant penalties.

Here are a few guidelines: If your overseas income falls under the $97,600 threshold for income tax exemption, or your actual tax liability is less than $1,500, there is a way to “come quietly” and avoid getting into trouble with the IRS.  It’s called the Offshore Voluntary Disclosure Program (OVDP), which the IRS set up a couple of years ago to help non-U.S. residents correct past tax returns.

If you’re approved by the IRS for the OVDP, you can amend up to eight years of past tax returns. The OVDP isn’t the right path for all taxpayers, especially those who have a tax liability greater than $1,500. It’s best to consult a CPA or tax attorney to help decide a course of action.

The sooner you act, the better. Foreign banks and financial service institutions will begin declaring U.S. citizen-held accounts to the IRS this July. When that happens, there will be no hiding from the tax man, Marini says.

“The voluntary disclosure program is only available until the IRS discovers they have an offshore account,” he says. “The moment the offshore banks start sending in reports that these people have accounts overseas, it’s too late for them to come clean because the IRS will already know.”

Non Expat Beanie Babies Creator Admits Tax Evasion

Will pay $53 mn penalty for FBAR failure

By David Voreacos and Andrew Harris (Bloomberg) as published online in Accountingtoday.com and is here ammended by IRS vs EXPATS

We must preface this post with the statement that this tax evader is NOT an expat. He is an American Person who lives in the United States of America and hid his millions in an offshore bank in Switzerland. I am an EXPAT who lives in Israel. My bank may be considered “offshore” by the IRS, but for me it is “ONSHORE.” My bank is around the corner from where I live and is used by me to deposit my local income and to pay people day to day with the bank credit card and checks. The Justice Department, in its public announcements such as this one, should accentuate that the guilty parties are not expats.

(Bloomberg) H. Ty Warner, the creator of Beanie Babies plush toys, was charged with tax evasion for failing to report $3.2 million in income on a secret Swiss bank account that held as much as $93.6 million in assets, and will pay over $50 million in penalties for failing to file an FBAR.

Warner, 69, will plead guilty in federal court in Chicago for hiding income at UBS AG, the largest Swiss bankd, U.S. Attorney Gary Shapiro said in a statement. Warner falsely reported his 2002 income as $49.1 million, omitting money he made on his UBS account. He amended his 2002 return in 2007, yet understated his tax by $885,300, according to court papers.

Since 2009, the U.S. has prosecuted about 70 U.S. taxpayers and 30 bankers, lawyers and advisers in a crackdown on offshore tax evasion.  Warner, the sole owner of TY Inc., held the highest account balance of the taxpayers prosecuted in the crackdown.

 “This is an unfortunate situation that Mr. Warner has been trying to resolve for several years now,” Gregory Scandaglia, Warner’s attorney, said in a statement. “Mr. Warner accepts full responsibility for his actions with this plea agreement.”

Warner, of Oak Brook, Illinois, also will pay a civil penalty of $53.6 million for failing to file a required Report of Foreign Bank and Financial Accounts, or FBAR, according to Scandaglia. He is scheduled to appear in court for his plea on Octocber 2, according to Shapiro’s spokesman Randall Samborn.

Warner opened a secret account at UBS in 1996. From there, he transferred $93.6 million in December 2002 to another secret Swiss account at Zurcher Kantonalbank, according to his criminal charging document known as an information.He disguised his ownership of the ZKB account by holding it under an entity called the Molani Foundation, court papers show. In 2002, he failed to report his UBS income of $3.2 million to his outside accountants, and didn’t file an FBAR. The tax return he filed for 2002 also was false, according to the information.

In 2009, Warner tried to avoid prosecution through an amnesty program at the Internal Revenue Service known as the Offshore Voluntary Disclosure Program, according to Scandaglia. He was denied entry, the lawyer said.

As an added note, the Beanie Babie Billionaire is to be sentenced on January 14, 2014. Apparently he has requested a judge to give him probation, not prison, for evading taxes. You can read about it in Accounting Today for the Web.

And The Walls Came Tumbling Down – Switzerland Helping IRS Find Tax Evaders

No more small potatoes million dollars here and million dollars there indictments. The big times will roll. The biggest net is now being thrown and the biggest fish are about to be caught. This is a big step in tightening the noose around the tax evaders. And I do not hesitate to predict, based on who these criminals have been in the past, that they WILL NOT BE EXPATS LIVING AND WORKING ABROAD. They will be prominent, seemingly law abiding citizens living in the United States, who secretly stash their illegally untaxed dollars in accounts outside the United States

Switzerland and the United States reached a watershed deal on August 29, 2013 to punish Swiss banks that helped wealthy Americans stash money in hidden offshore accounts, closing the door on an era of bank secrecy and tax evasion.

The formal agreement, which was announced on Thursday by the Justice Department in Washington and will be presented by Swiss authorities on Friday, outlined formulas for Swiss banks to pay up to billions of dollars in fines and disclose information about American account holders, a joint statement said.

The deal calls for stiff measures that lift the veil of Swiss secrecy. Banks will be required to provide the details on accounts in which American taxpayers have an interest through treaty channels, inform on other banks that transferred money into secret accounts or that accepted money when secret accounts were closed, disclose all cross-border activities, and close the accounts of Americans who are evading taxes.

Significantly, the deal does not cover 14 Swiss banks and Swiss branches of international banks that are under criminal investigation by the United States authorities, including Credit Suisse, Julius Baer and several regional banks. Instead, it effectively covers the rest of the Swiss banking industry, home to a tradition of bank confidentiality and laws that have not considered tax evasion a crime. By some estimates, Switzerland is home to more than $2 trillion in overseas deposits.

“This program will significantly enhance the Justice Department’s ongoing efforts to aggressively pursue those who attempt to evade the law by hiding their assets outside of the United States,” Eric H. Holder Jr., the attorney general, said in a statement.

He added that the program, outlined over 11 pages, “is intended to enable every Swiss bank that is not already under criminal investigation to find a path to resolution.”

The agreement said that Swiss banks that follow the program will be eligible to enter non-prosecution agreements that do not involve guilty pleas or criminal penalties.

Mr. Holder’s statement suggested that some unidentified Swiss banks were not cooperating and thus could face indictment. The agreement, he said, “creates significant risks for individuals and banks that continue to fail to cooperate, including for those Swiss banks that facilitated U.S. tax evasion but fail to cooperate now, for all U.S. taxpayers who think that they can continue to hide income and assets in offshore banks, and for those advisers and others who facilitated these crimes.”

The agreement will also turn up the heat on American clients who have not already entered voluntary disclosure programs with the Internal Revenue Service.

Banks that enabled tax evasion after the United States authorities began their investigation will face more severe punishment. Banks that held accounts as of Aug. 1, 2008, will pay a fine equal to 20 percent of the top dollar value of all non-disclosed accounts. The fine increases to 30 percent for secret accounts opened after that date but before March 2009, and to 50 percent for accounts opened after that.

American officials were angered that some Swiss banks accepted clients who were fleeing UBS, the largest Swiss bank, about 2009, when it averted indictment by reaching a $780 million deferred prosecution agreement with United States officials.

The Justice Department has not put a final tally on the amount that Swiss banks will pay in fines under the deal, an American government official said, in part because it does not yet know the number. Both sides signed the final deal after the Swiss Federal Council on Wednesday instructed the country’s finance officials to put the finishing touches on the agreement.

Switzerland has been locked in thorny negotiations with Washington over the tax evasion issue since 2009. Scores of Swiss bankers, lawyers and American taxpayers have been indicted in recent years, including Wegelin & Company, the oldest Swiss bank, which went out of business. Negotiations took a turn for the worse in recent years amid conflicts between Justice Department officials and Michael Ambuehl, the former top Swiss negotiator who stepped down in May.

A previous attempt by the Swiss government to arrange a deal failed in June when Parliament balked, reflecting concerns about privacy and complaints that the agreement was being negotiated in secret. Legislators then called on Eveline Widmer-Schlumpf, the Swiss finance minister and president of the Federal Council, to work out an agreement with Washington.

A stumbling block may still exist. The deal calls for both sides to use information exchange channels outlined in existing treaties. But the United States has not yet ratified a 2009 treaty protocol that would ease that disclosure, with Senator Rand Paul, Republican of Kentucky, blocking approval, arguing that it would give the I.R.S. too much power and violate Americans’ right to privacy.

IRS vs Israeli Expats

In an article in Haaretz.com today entitled, “IRS ramps up audits of taxpayers in Israel – accountants warn financial reviews by U.S. authority here are at an all-time high,” they affirm what I have been saying here for lo these many months as I report my own personal experience and what others write. And I don’t know why it is that nobody picks up on the fact that this is really taxation without representation. Also, once again, there is no mention of the Six Nation Agreement which, at such a time is extended to include Israel, will bring everything that the IRS knows about you to the attention of the Israel Tax Authority. I urge you to read about this in my previous article.

Here is the Haaretz.com article…….

Americans filing their tax returns from Israel are being audited by the U.S. Internal Revenue Service with a frequency that industry professionals have never seen before, according to several certified public accountants.

While some of the accountants who spoke with Haaretz are not convinced Americans living in Israel are being singled out for audits more than other Americans living abroad, some maintain that the IRS has given indications it will pay more attention to Israel, Hong Kong and Singapore.

All are cautioning filers to take note of a new “vigilance” among U.S. tax authorities less than two months before the June 15 filing deadline for taxpayers living outside the United States.

“Most of my colleagues would agree that the audit rate is up significantly,” maintains Alan R. Deutsch, a certified public accountant with offices throughout Israel. “The IRS is conducting large-scale audits to a degree I have not seen in the nearly 20 years I have been practicing in Israel. Those are the plain facts.”

The accountants who spoke with Haaretz generally agreed that over the last two or three years, the U.S. administration has been steadily “tightening the screws” – as one accountant put it – as it cracks down on offshore tax evasion by U.S. citizens in an effort to bolster revenues and compliance. “Americans here should be concerned,” says Don Shrensky, whose Jerusalem-based firm specializes in both U.S. and Israeli tax planning and compliance. “With the new reporting requirements by Israeli banks under FATCA – the Foreign Account Tax Compliance Act – it is going to be more difficult for Americans living in Israel to avoid dealing with U.S. income tax returns in the future.”

Starting in 2014, Israeli banks will identify and report to the IRS for calendar year 2013 each account held by a U.S. person, including account balances. In 2016, for calendar year 2015, banks will be required to start reporting the account income. Under recently issued temporary regulations, Israeli banks are exempt from identifying pre-existing accounts with balances of less than $50,000 for individuals and $250,000 for entity (companies, trusts, etc. ) accounts. “But will the Israeli banks make that distinction?” Shrensky asks.

Earlier this month, Haaretz reported that Bank of Israel Governor Stanley Fischer was considering asking the cabinet to reach a tax agreement with the United States to help allay Israeli banks’ fears regarding strict new U.S. tax regulations for Americans living abroad. The report revealed that Bank Leumi is already requiring its U.S. customers to sign a document by the end of the month, in which they declare that they have complied with the U.S. tax authorities’ reporting requirements. If they do not do so, they risk having their accounts frozen. Bank Hapoalim also reportedly made a similar request of its customers.

Meanwhile, the Israeli web site NRG reported on Monday that Americans have withdrawn more than a billion dollars from Israeli banks over the last several months.

The accountants who spoke with Haaretz did not have nationwide statistics for the number of audited U.S. tax returns submitted from Israel; each based their conclusions on the number of audits of their own clients and some of their clients’ colleagues. “I know of one colleague who received 22 requests [audits] in one week,” one veteran accountant told Haaretz on the condition his name not be revealed.

“In my perception, the audit numbers will only increase,” says Doron Sadan, COO and tax partner of PwC Israel. “The U.S. tax authorities will be very strict and have much more information through the banks and financial institutions as they become aware of individuals who do not file a tax return.”

Several accountants speculated about other “red flags” that may have caught the eye of IRS regulators, from trends pointing to a spike in the number of Americans abroad registering their children as American citizens; the U.S. government’s “Amnesty” (Overseas Voluntary Disclosure Initiative ) program in 2009 and 2011; and the frequent use by large American families of the decade-old provision allowing middle-income Americans to take a $1,000 credit against tax for each child under the age of 17.

“If a U.S. person living in Israel has an Israeli salary and the combined salary of both spouses is less than $110,000, the Israeli tax paid on the salary is credited against the U.S. tax due,” explains Shrensky. “Assuming no other income, usually the Israeli tax credit will eliminate the U.S. tax due. The taxpayer then gets a refund check from Uncle Sam.”

The credit was originally intended to relieve families’ tax burden, Shrensky says. Yet Deutsch posits that there seems to have been some “abuse” in the claiming of the credit. “The IRS may be realizing that people, for the most part, applied for citizenship for their children in order to possibly claim a child credit on their tax returns,” he says. “So with the increase in applications for citizenship, there has been an increase in the number of federal audits to make sure that children claimed on the tax returns are being done correctly.” Deutsch says the IRS is “primarily, though not exclusively,” focusing on the child credits.

Another accountant, who asked not to be identified, said an “unscrupulous firm in Israel was preparing fraudulent tax returns to boost the refund amount,” though he did not name the firm in question. “The IRS got wind of this and has audited all of their clients, plus they have started to audit returns prepared by other Israeli firms or by the taxpayers themselves.”

It is estimated that there are some 200,000 Americans living in Israel, according to officials at the Association of Americans and Canadians in Israel. Those whose returns are being audited must obtain a long list of documents. Depending on the specific case, those documents may include a certified translation of the Israeli Form 106 – for Israeli wages earned, salary slips and the Israeli tax return. In cases where families are being asked to authenticate the number of their children, birth certificate and naturalization documents must be provided. It must also be proven that the children live with the taxpayer, who in turn supports them. Even if the IRS accepts the taxpayer’s explanation, the process of furnishing documentation with certified translations, and employing the services of certified accountants, will cost taxpayers plenty of time and money, industry observers note.

Shrensky takes the IRS to task for mishandling what he sees as its two main goals: identifying tax cheats and encouraging non-complying taxpayers to come back into the system.

“In my opinion these are two different goals requiring two different approaches,” says Shrensky. “Unfortunately, the IRS has been applying the same tactics against both the cheats and non-compliers. They have also put into the same box both the U.S. taxpayers who live in a foreign country and those who live in the U.S. They are not the same.”

The Internal Revenue Service did not respond to a request for comment on this article.

Though the U.S. Department of Internal Revenue Service does not maintain an office in Israel, Americans here may contact the web site of the Paris branch for international inquiries: http://france.usembassy.gov/irs.html Americans may also turn to the Association of Americans and Canadians in Israel, which publishes an online, regional list of certified accountants with whom the organization is “familiar,” according to the group’s director of absorption services, Josie Arbel. The list may be viewed on the AACI website at http://www.aaci.org.il. AACI also holds a number of tax preparation and financial planning seminars both for members and the public throughout the year, according to Arbel. In the coming months, the AACI is planning additional tax seminars in Jerusalem and Tel Aviv ahead of the June 15 filing deadline.

Help with tax returns

Americans seeking guidance and assistance with the preparation of their income tax returns may turn to a variety of sources throughout Israel.

The Association of Americans and Canadians in Israel (AACI) publishes an online, regional list of certified accountants with whom the organization is “familiar,” says the group’s director of absorptions services, Josie Arbel. The list may be viewed at: http://www.aaci.org.il/articlenav.php?id=30.

“Callers are usually referred to a minimum of three accountants on the list,” says Arbel, whose counselors urge immigrants to compare the various services and prices. AACI holds a number of tax preparation and financial planning seminars both for members and the public throughout the year, according to Arbel.

In the coming months, the AACI is planning additional tax seminars in Jerusalem and in Tel Aviv ahead of the June 15th filing deadline. “We certainly can’t offer financial solutions but we try to give our members the tools so that they’ll be in a better position to make educated decisions,” says Arbel.

American Citizens Abroad (ACA) Writes to IRS Commissioner on Unfair IRS Treatment of Americans Abroad

This is reprinted from the newsletter of the American Citizens Abroad  (ACA), which is the voice of Americans overseas, a non-profit, non-partisan, all-volunteer organization that represents the interests of Americans living and working outside the U.S. We urge you to join and support them.

On March 5th, American Citizens Abroad (ACA) wrote to Commissioner Doug Shulman of the IRS to express great concern that he has not yet answered the Tax Advocacy Directive (TAD) which National Taxpayer Advocate Nina Olson issued in August 2011 and repeated in her Report to Congress issued December 31st, 2011. In the TAD and in the Report to Congress, Nina Olson argued that IRS examiners treated some participants in the 2009 offshore voluntary disclosure program (OVDP) unfairly, and she ordered several IRS divisions to take various steps to correct this treatment, including allowing taxpayers who had paid penalties under the OVDP to request a reduced penalty. Many participants in the OVDP program have been Americans living overseas who had no idea they had to make a tax declaration to the United States, which is the only country in the world (besides renegade Eritrea), which taxes on the basis of citizenship instead of residence.

MaryLouise Serrato, Executive Director of ACA and co-signatory of the letter to Shulman, explained, “By imposing large penalties for a simple filing omission, the IRS has adopted a camouflaged policy of taxing assets of Americans abroad through penalties.” Anne Hornung-Soukup, Finance Director of ACA and the other co-signatory of the letter, said, “Our letter to Commissioner Shulman of the IRS makes it clear that ACA is in full agreement with efforts to find and hold accountable tax evaders.” Hornung-Soukup continued: “Many of the U.S. citizens living abroad who entered the OVDP in fact owed no taxes to the United States, since they had paid full taxes in their country of residence. Yet because of not filing their FBAR [Foreign Bank Account Report] forms, they faced IRS imposed fines and penalties amounting in some cases to their entire lifetime savings.”

ACA’s letter explained to Shulman that, on the FBAR form, Americans have to declare even accounts over which they have signature, but which they do not own, as well as joint accounts with non-citizens. This is particularly damaging to the many American women who are married to non-Americans and living abroad. They have often never worked outside of the home, and therefore do not owe any taxes. Yet to come into the system by filing the necessary FBARs, they will have to declare their foreign spouses’ accounts to the IRS and be subjected to heavy penalties, something their non-U.S. spouses are understandably reluctant to undergo.

ACA concluded its letter by stating its position that these huge problems for Americans living overseas are essentially due to the U.S. system of citizenship-based taxation. ACA is therefore strongly encouraging Congress to abandon citizenship-based taxation and to adopt residence-based taxation for individuals at the same time they adopt residence-based taxation for corporations. The full text of the letter can be read at:www.aca.ch/shulman-tad.pdf

Nice Catch for the IRS — $4,400,000,000.00

Yes, you are reading that big dollar number up there correctly. It really does say $4.4 billion.  And that is what the IRS reports that they reeled in for all their Offshore Voluntary Disclosure Initiatives, thus far. And there’s more to come. On January 9, 2012 they released news of their renewed OVDI in the release pasted below. This is good news, if you ask me, as perhaps they will concentrate more of their efforts on catching the real thieves, most of whom live in the USA, and less efforts on harassing we innocent law abiding citizens living abroad.

IRS Offshore Programs Produce $4.4 Billion To Date for Nation’s Taxpayers; Offshore Voluntary Disclosure Program Reopens

IR-2012-5, Jan. 9, 2012 WASHINGTON — The Internal Revenue Service today reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs. The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion.  This program will be open for an indefinite period until otherwise announced. “Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.” The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply.  However, the terms of the program could change at any time going forward.  For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point. “As we’ve said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.” The third offshore effort comes as Shulman also announced today the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program.  That number will grow as the IRS processes the 2011 cases. In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures.  Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDP program. The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category. For the new program, the penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011. Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined. The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations.  This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax.  The IRS is currently developing procedures by which these taxpayers may come into compliance with U.S. tax law. The IRS is also committed to educating all taxpayers so that they understand their U.S. tax responsibilities. More details will be available within the next month on IRS.gov. In addition, the IRS will be updating key Frequently Asked Questions and providing additional specifics on the offshore program.

 

U.S. Justice Department Indicts Swiss Bank Wegelin

It is nice to see that the IRS is going after the criminals rather than wasting its funds on law abiding, honest Americans. There are, no doubt, too many of the former group who are still illegally not paying taxes on their income and are still trying to hide their stolen money in Swiss bank accounts. Woe to he that tries to hide these illicit funds in Switzerland, or any other place in the world, for that matter. In a trilogy of articles published on the Reuters web site on January 27th, January 31st, and just yesterday, February 2nd, they report the unraveling of this web of secrecy within the oldest private Swiss bank named Wegelin. For the first time, because of their clients fleeing the bank, they have split their bank up into two portions. One part, containing their American customers caught in the IRS trap, remains Wegelin. The other part, containing all their other criminal customers who would have jumped overboard, like rats leaving the sinking ship, has been sold. They are transferring most of their clients and employees centered on Switzerland to Notenstein Privatbank, which is being bought by Raiffeisen. Wegelin will remain in charge of U.S. customers, the two banks said.

The Justice Department of the United States has indicted Wegelin, the oldest Swiss private bank, on charges that it enabled wealthy Americans to evade taxes on at least $1.2 billion hidden in offshore bank accounts. But what muscle does the Justice Department have? Unlike UBS, whose assets in the United States were attached by court action in the America, Wegelin has no branches in the USofA. But because Wegelin used “correspondent banks” to handle these funds originating in America, the U.S. government has seized more than $16 million from Wegelin’s correspondent bank, the Swiss giant UBS AG, in Stamford, Connecticut, via a separate civil forfeiture complaint.

The indictment clearly states the illegality and immorality of what Wegelin has been doing. The charges against Wegelin, of fraud and conspiracy, provide a rare glimpse into the rotten world of Swiss private banking:

* Wegelin, one of the last “pure” private banks, is principally owned by eight managing partners and run by an executive committee that included partners. One unindicted co-conspirator, named as Executive A at the bank, was a member of Wegelin’s executive committee and worked in Zurich.

* Wegelin used a special code, “BNQ,” on around 70 new U.S. undeclared accounts that were opened over 2008 and 2009. It also sometimes opened accounts for U.S. citizens who held passports from other countries, and opened the accounts through the non-U.S. passports.

* Wegelin recruited U.S. clients through a website, http://www.SwissPrivateBank.com, that was run by an unidentified third party. The website boasted there that “Swiss bank secrecy is not lifted for tax evasion … Neither the Swiss government nor any other government can obtain information about your bank account.” Unlike the United States, Switzerland generally does not consider tax evasion to be a crime.

* Wegelin gave accounts special names, including “Elvis” and “Limpopo Foundation.” The charges detailed the bank’s work for nearly three dozen American clients, known only as clients A through JJ.

* Wegelin encouraged clients not to come forward to the U.S. Internal Revenue Service and disclose their names in exchange for reduced penalties. Clients who did so in recent years helped provide the Justice Department with a roadmap to the inner workings of Wegelin – a map that led to the bank’s indictment.

We wish the IRS and the Justice Department success with this indictment and all their efforts to continue to focus their funds and efforts in catching these thieves, most of whom, incidentally are NOT Expats but Americans living on American soil stealing from other Americans. But we urge the IRS to not use this as a reason to continue to pursue law abiding Expats who are desperately trying to fulfill their obligations of American citizenship and pay their taxes. The message here is that the IRS should ease off on their distorted Offshore Voluntary Disclosure Initiative and Congress should repeal the Fatca (Foreign Account Tax Compliance Act).

Taxpayer Advocate Service Annual Report to Congress 2011

FREEDOM OF INFORMATION ACT

The Taxpayer Advocate Service which, in vain, tried to help me in my recent and still ongoing interaction with the IRS, has issued their 2011 Annual Report to Congress entitled, “Introduction to International Issues: Compliance Challenges Increase International Taxpayers’ Need for IRS Services and May Undermine the Effectiveness of IRS Enforcement Initiatives in the International Arena.” It is available online on the IRS web site as a 144 page pdf file and, as most bureaucratic reports, is lengthy, convoluted, and confusing. Nonetheless, it highlights the problems that the IRS is causing for Expats and is highly critical of them. If you can’t find it, click on the link above and then click on “International” and you’ll download the file.

It starts with the statement, “In recent years, globalization has pushed an increasing number of taxpayers (including small- and medium-sized businesses and individuals) to seek economic opportunities abroad. It also has increased competition among tax administration agencies for tax bases and sources of revenue. The revenue generated depends on governments’ administrative capacities to collect taxes, and more importantly, on taxpayers’ willingness and ability to comply. For this reason, 40 economies made it easier to pay taxes last year.  In contrast, a recent World Bank report ranks the United States 66th in time spent to comply and 62nd in the ease of paying taxes among 183 countries surveyed”

“The complexity of international tax law, combined with the administrative burden placed on these taxpayers, creates an environment where taxpayers who are trying their best to comply simply cannot. For some, this means paying more U.S. tax than is legally required, while others may be subject to steep civil and criminal penalties. For some U.S taxpayers abroad, the tax requirements are so confusing and the compliance burden so great that they give up their U.S. citizenship.”

Continuing, they state, “A recent IRS study of taxpayer needs and preferences showed that international taxpayers may have a greater current need for IRS services than the general taxpayer population. Yet while the IRS has substantially stepped up and invested hundreds of millions of dollars in international enforcement programs, it has not adequately improved taxpayer services that would foster compliance.” This concept was included in the letter that I wrote to  Congresswoman Carolyn Maloney (D-N.Y.), who supposedly “represents” Expats in the U.S. Congress. She and Congressman Joe Wilson (R-S.C.) formed the Americans Abroad Caucus in 2007. Again, this concept was included in the letters I wrote to Alan Dershowitz, to the President of the United States, Barak Obama, and to others. And none of any of the recipients of my letter deigned to respond. So much for representation of the people and by the people.

But back to the report which, on page 123, they conclude, “The 2009 Offshore Voluntary Disclosure Initiative (OVDP) was a great deal for people involved in criminal tax evasion. They were not affected by the IRS’s “clarification” that it would not consider non-willfulness, reasonable cause, or the mitigation guidelines in applying the offshore penalty because their violations were willful. However, the IRS is perceived as having reneged on the terms of the 2009 OVDP that would benefit taxpayers whose violations were not willful. Many felt the IRS treated them unfairly as compared to similarly situated taxpayers. It placed them in the unacceptable position of having to agree to pay amounts they do not owe under “existing statutes” or face the prospect that the IRS would assert excessive civil and criminal penalties. The IRS’s perceived reversal burdened taxpayers, wasted resources, violated longstanding IRS policy, opened the IRS to potential legal challenges, and was not properly disclosed as required by FOIA (Freedom of Information Act). It also damaged the IRS’s credibility with taxpayers as well as the practitioner community. As a result, the IRS is likely to have more difficulty gaining participation in any future settlement initiatives. This erosion in trust for the IRS among taxpayers and practitioners is also likely to have a negative impact on IRS’s mission and voluntary tax compliance more generally.” This paragraph is, to me, quite confusing, but does damn the practices of the IRS in its treatment of Expats.

There is, obviously, much more to read in this report than I have extracted here. It is well documented and filled with a myriad of details. Who will actually read all this? What effect will it have on Congressional legislation? What, if any, power does the the Congress have in terms of how the IRS treats American Expats? Will anything really change? I am sorry to be the pessimist as regards how I answer these questions, but I don’t think that anything will change. The fact remains that the coffers of the US Treasury are dangerously deficient and they are desperately dodging the deficit bullet. We will continue to be in their sights as they try to squeeze more money out of us. But you can decide the answers to these questions for yourself.

Tomorrow’s The DEADline (from Forbes.com)

Mailing Is Not Enough For Sept. 9 OVDI Deadline

by Robert W. Wood

In the old days, April 15th and other key tax filing deadlines were met with extended hours at the post office. A few hardy souls in big cities would even make drive-by drop-offs at central post offices shortly before midnight. Happy postal employees would accept your Form 1040 from your car window as you cruised by. And the big wheels of government would keep on turning.

Today, some of this may still occur somewhere in a kind of American Graffiti reprise. But mostly, this happy tradition has been replaced by taxpayers unceremoniously huddled over their computer keyboards on the deadline preparing to file electronically. Everyone seems to love e-filing.

But right now, a key deadline affecting many is the looming fuse for IRS offshore amnesty. If you want to enter the IRS Offshore Voluntary Disclosure Initiative (OVDI), do it now. Slated to end August 31st, the IRS announced a short extension until September 9, 2011. See IRS Statement: OVDI Deadline Extension. But is it enough to get your papers in the mail to the IRS on September 9th?

Not hardly. In fact, the IRS must receive your properly completed materials on or before September 9, 2011. You can’t e-file it and you can’t just postmark it on or before September 9th. You’ve got to get it in the IRS hands, and some very specific hands. Applications must go to:

Offshore Voluntary Disclosure Coordinator
600 Arch Street, Room 6404
Philadelphia, PA 19106

Although some taxpayers may try to do this themselves, most work through a tax attorney. Some accountants are also preparing these, though dealings with accountants do not carry attorney-client privilege. But however you do it, moving forward for many makes sense, regardless of when you learned you weren’t compliant.

True, many U.S. citizens and permanent residents didn’t know about these rules until recently. But it’s harder today to remain ignorant. As you evaluate alternatives, consider what the IRS says is “willful.” See IRS May Find “Innocent” FBAR Violation Willful.

The IRS says a person with foreign accounts should read the information the government specifies in its tax forms and instructions, and that failing to follow-up may provide evidence of “willful blindness.” See Excerpt From Internal Revenue Manual, 4.26.16.4.5.3, Paragraph 6 and Some Foreign Account Penalties Unfair, Says Taxpayer Advocate.

Again, the IRS must have received in Philadelphia certain key documents from you on or before September 9, 2011. You may be able to get an extension for some of the items, but the extension request must be received by the IRS in Austin (3651 S. I H 35 Stop 4301 AUSC, Austin, TX 78741, ATTN: 2011 Offshore Voluntary Disclosure Initiative) also by September 9, 2011. You can’t e-file either one. Don’t get confused by the recent changes to FBARs that allow some e-filing.

You can read this, as well as many other articles/blogs on Forbes.com .