January 2010 Archives

UBS Offshore Account Owner Wins Case Against Internal Revenue Service (IRS)

January 22, 2010,

The owner of a UBS offshore account has won a lawsuit in the Swiss Administrative Court barring UBS from turning over her name to the Internal Revenue (IRS). The reasoning of the Court was that the only evidence of tax fraud was the failure to submit IRS Form W-9, and this by itself was not sufficient to establish tax fraud, or the like which is a precondition to supplying information to the IRS under the terms of the Swiss Tax Treaty. The Swiss Government has indicated that it will respond to the decision on Jan. 27th.

This leaves the question of how will other UBS offshore account holders, and owners of other Swiss bank accounts at other banks will be impacted. Those individuals who have already made voluntary disclosures to the IRS are not impacted. They have already committed to going forward, and there is no good way to unring that bell.

I expect there will be a good deal of buyer remorse among holders of offshore financial accounts who already entered the voluntary disclosure program. To those I would point out several things. First, everyone’s situation is different. The fact that the failure to provide a Form W-9 is not by itself tax fraud or the like, doesn’t mean that there might be other facts in your case which would constitute tax fraud. Second, in order to dispute the decision of the Swiss Federal Tax Administration (FTA) to turn over bank records would have required the filing of an action in Switzerland. Doing so would trigger the provisions of U.S. law requiring someone who files such an action to serve a copy of the pleadings on the U.S. Attorney General. The failure to do so would be a criminal offense. The lead prosecutor on FBAR (Foreign Bank Account Report) cases stated last year that the IRS intended to prosecute anyone who failed to follow that law.

Third, it would not have been possible to obtain a decision from the Swiss Administrative Court prior to the expiration of the tax amnesty program so if you had filed suit you would have had to take the risk of losing, and incurring higher FBAR penalties.

Fourth, one reason for entering the voluntary disclosure program was so that you could sleep at night. Litigating a tax fraud case in Switzerland is not calculated to induce sleep. Other reasons to enter the voluntary disclosure included the repatriation of funds, and removing them from the grip of greedy Swiss bankers who were charging a fortune for their services, and paying little in the way of interest. Not to mention avoiding leaving the headache of an offshore bank account for your children, and grandchildren to clean up. Leaving the funds in undisclosed offshore bank accounts also would force you to continue to commit tax fraud each year as you file your tax returns, and to violate the Bank Secrecy Act, by continuing to fail to file Foreign Bank Reports (FBARs) each year. Not a pretty picture.

Fifth, this decision obviously doesn’t apply to anyone with offshore accounts outside of Switzerland. The tax treaties with most countries make it much easier for the IRS to obtain information regarding tax evasion.

If you have offshore bank or financial accounts, and you would like advice contact the tax litigation lawyers at Brager Tax Law Group, A P.C.

Taxpayer Advocate Reports Tax Liens as Serious Tax Problem

January 20, 2010,

The Internal Revenue’s (IRS ) tax lien filing polices were in the Taxpayer Advocate’s 2009 Report to Congress listed as the second most serious tax problem facing taxpayers today. This is not a big surprise to those tax lawyers who deal with IRS tax collection problems on a regular basis. I often tell clients that the most difficult objective is to try and get the IRS to release a tax lien prior to making full payment of a delinquent tax liability.

The Taxpayer Advocate’s Report details how the IRS files tax liens without regard to whether or not the taxpayer has assets, and despite the fact that in many instances the filing of a tax lien does not protect the IRS, and only exacerbates the taxpayer’s inability to pay. The Report also points out that the Internal Revenue Manual puts obstacles in the path of their employees who decide not to file a tax lien-- requiring managerial approval, and documentation of any decision not to file a tax lien.

One would only hope that the IRS tax Collection Division takes serious note of the criticisms by the Taxpayer Advocate, and that it not continue to file tax liens as method of punishing taxpayers; however, the IRS responses to the Report make clear that Congressional action will be necessary for any significant tax lien relief.

Taxpayers with tax problems must therefore continue to explore other avenues of relief including offers in compromise, installment payment agreements, audit reconsideration, and bankruptcy to resolve their tax problems.

If you have tax problems call the tax lawyers at Brager Tax Law Group, Inc. for a consultation.

California Income Tax Evasion Charged

January 20, 2010,

The California Franchise Tax Board (FTB) has arrested an individual for felony income tax evasion. According to the FTB Phillip Leech was the CFO of In & Out Desighns, Inc. which allegedly earned more than $1.3 million over a three year period, but didn’t file corporate income tax returns. There are a couple of interesting things about this tax fraud case. One is that Leech was apparently not the owner of the corporation; nevertheless because he was the CEO and CFO the FTB pointed out that he had a duty to file the income tax returns, and was charged with tax evasion. The amount of tax alleged to be owed by the corporation was not huge, $122,000, but the FTB still brought a criminal tax fraud case.

Another interesting point is that the criminal tax fraud case was brought only after the FTB issued notices to the corporation requesting tax returns. Sounds like Mr. Leech should have paid more attention to his mail!

If you have a tax problem with the California Franchise Tax Board, the Internal Revenue Service, or another California tax agency call the tax litigation lawyers at Brager Tax Law Group, A P.C.

IRS Issues Fact Sheet on Filing Foreign Bank Account Reports (FBARs)

January 13, 2010,

The IRS has issued a fact sheet on filing Form 90-22.1, Report of Foreign Bank and Financial Accounts (FBARs) to start the New Year. The FBAR fact sheet adds nothing to the sum of our knowledge on FBARs simply stating the obvious. For example, it states:

If you own or have authority over a foreign financial account, including a bank account, brokerage account, mutual fund or other type of financial account, you may be required to report the account yearly to the Department of the Treasury. Under the Bank Secrecy Act, each United States person must file a Form TD F 90-22.1, Report of Foreign Bank and financial Accounts (FBAR), if:

• The person has a financial interest in, or signature authority (or other authority that is comparable to signature authority) over one or more accounts in a foreign country, and
• The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

Hardly earth shattering. On the other hand these IRS fact sheets are generally intended to provide basic information to individuals unfamiliar with an area of tax law.

If you have an offshore financial account, and would like to have your questions answered call one of the tax lawyers at Brager Tax Law Group, A P.C. for an appointment.

Swiss Court Finds Certain UBS Disclosures of Offshore Accounts Illegal

January 13, 2010,

The Swiss Federal Administrative Court ruled that the order to UBS by the Swiss Financial Market Supervisory Authority (FINMA) to turn over the names of 250 United States UBS customers accused of committing tax fraud or tax evasion was illegal. The decision may be appealed to the Swiss Supreme Court. You will remember that early last year UBS turned over the names of 250 of its U.S. customers with offshore accounts; the IRS Criminal Investigation Division (CI) reportedly began investigations of about 150 of those persons for potential tax evasion, and failure to file Foreign Bank Account Reports (FBARs). Several of those persons already have pled guilty to criminal tax charges.

If the decision is upheld many U.S. persons will no doubt argue that any prosecution of them on the basis of evidence provided illegally is tainted. Whether that argument will fly remains to be seen. For a copy of the court’s decision (in German) click here: Download file 1 Download file 2 Download file 3 Download file 4 Download file 5 Download file 6

Swiss tax attorneys have been quoted as saying that the court’s order will have no effect on those 4,450 names being turned over pursuant to the agreement entered into between UBS, and the IRS last August.

If you have offshore bank accounts, and still have not decided whether to make a voluntary disclosure contact the tax attorneys at Brager Tax Law Group, A P.C.