January 2011 Archives

Payroll Tax Problems best Handled by Experienced Business Tax Attorney

January 28, 2011,

Our tax attorneys continue to see businesses struggle with payroll tax problems. Whether you have 3 employees or 300, or whether you have downsized in response to the struggling economy, payroll tax audits can cause serious legal and financial problems that can threaten the survival of a business.

The U.S. Department of Justice reports a recent case out of northern Virginia, in which a business owner was sentenced to 19 months in prison for failing to collect, account for, and pay to the Internal Revenue Service more than $200,000 in employee withholding taxes.
He was also ordered to pay $88,826.79 in restitution to the IRS.

The defendant was president of a computer software company. According to the government's allegations, he failed to pay to the government employees' withholdings for Social Security, Medicare and federal income taxes from December 2004 to June 2008.

The case was handled by the Justice Department's Tax Division, the U.S. Attorney for the Eastern District of Virginia, and the Internal Revenue Service.

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FBAR Tax Amnesty--Round Two

January 25, 2011,

The IRS is expected to launch a new offshore bank account tax amnesty very soon announced Steven Miller, IRS Deputy Commissioner for services and enforcement. He made the announcement at an American Bar Association Tax Section Meeting in Boca Raton, Florida. The program which is sometimes referred to as the offshore voluntary disclosure initiative allows taxpayers who failed to file FBARs, or to report income from foreign bank accounts avoid criminal tax evasion, and other criminal tax charges. It will also allow FBAR non-filers to avoid the steep 50% penalty imposed under the Bank Secrecy Act for failure to file an FBAR.

Miller warned, however, that the new offshore voluntary disclosure program will not be as generous as the previous program which ended on October 15, 2009. Under the prior program taxpayers who voluntary disclosed the existence of their offshore financial accounts had to pay the tax on the unreported income, plus interest, plus a 20% accuracy related penalty AND 20% of the highest balance in the offshore account. Miller did not disclose what the penalty structure would be under the voluntary disclosure program. Our tax lawyers believe that if the penalties under the new IRS offshore tax amnesty are too high it will discourage some taxpayers from coming clean.

Miller noted that the IRS received 15,000 disclosures under the first offshore voluntary compliance program, and has received another 3,000 voluntary disclosures since Oct. 15, 2009.

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Woman Convicted of Tax Evasion in Smallest Case Stemming from Government Crackdown on Offshore Accounts

January 20, 2011,

Our tax attorneys noted a recent case in which a woman is accused of hiding $750,000 in an offshore bank account set up by her father with Swiss banking giant UBS AG.

Too often people think Swiss bank account problems only impact the very wealthy. In fact, they impact those in all walks of life. In many cases, those who are less well-versed in banking and tax laws may be more prone to exposing themselves to offshore tax fraud allegations.
The North Jersey Record reported that the 42-year-old woman's 2005 tax return omitted interest, dividend and capital gains income from the Swiss account. The fund was reportedly opened in her name by her father. The government accuses her of using it to avoid IRS reporting requirements.

The Record reports her 67-year-old father admitted to opening UBS accounts in 1992 and 2000 and funding them with more than $1 million skimmed from his printing business. The tax evasion charges stem from the crackdown on offshore bank accounts announced last year by the U.S. Department of Justice and the Internal Revenue Service.

UBS, Switzerland's largest bank, paid a $780 million fine and turned over the names of American account holders to the U.S. government in order to avoid prosecution.

This case is the smallest thus far brought to court by prosecutors. The defendant admitted to failing to report $9,942 in income on her tax return. She faces up to three years in prison at her sentencing Feb. 28. Her father faces up to five years in prison at his sentencing in March.

Continue reading "Woman Convicted of Tax Evasion in Smallest Case Stemming from Government Crackdown on Offshore Accounts " »

Julius Baer Offshore Bank Account Information To Be Released

January 17, 2011,

Rudolph Elmer, an ex Julius Baer executive turned over offshore bank account information to WikiLeaks today, according to Bloomberg News. According to the release, data on 2000 offshore bank accounts has been turned over, and WikiLeaks plans on making the data public; although it says it will take at least two weeks to verify the information, and release it.

We can be sure that the IRS will be reviewing that list, and seeing if Americans on it have filed timely Foreign Bank Account Reports (FBAR). Those U.S. persons who have a financial interest, or signatory authority over a foreign bank account are required to file a Foreign Bank Account Report on Form TDF 90-22.1 by June 30th of the following calendar year. Those that haven’t may find themselves the target of criminal tax fraud charges. Even if no criminal tax evasion charges are filed the IRS can impose a civil penalty which can reach 50% of the balance in the offshore account.

There may still be time for holders of Julius Baer offshore accounts to file a voluntary disclosure with the IRS in order to minimize the chances of criminal tax charges, and possible reduce the amount of the civil FBAR penalties.

If you have an offshore account at Julius Baer, or at another offshore bank feel free to contact the tax litigation attorneys at Brager Tax Law Group, A P.C. to arrange a consultation.

FATCA Impacts Offshore Bank Accounts (Part II)

January 7, 2011,

Since March of 2009 about 18,000 owners of offshore bank accounts have filed voluntary disclosures with the IRS. So what does FATCA mean to current holders of overseas financial accounts who have not filed FBARs (Foreign Bank Account Reports) on Form TDF 90.22-1, and who have not taken advantage of the IRS voluntary disclosure program? As pointed out previously the willful failure to file an FBAR can result in a civil penalty of 50% of the highest balance in the offshore bank account. The IRS can also bring criminal charges for failing to file an FBAR.

Many owners of Swiss bank accounts who were not at UBS decided not to take advantage of the previous tax amnesty which ended on Oct. 15, 2009 because they were afraid it would be too expensive. They hoped that the IRS wouldn’t find them, and that they would be protected by Swiss secrecy laws. Once FATCA becomes effective, however, the overseas financial institutions with agreements with the U.S. will request a waiver of the secrecy laws, and if the waiver is not forthcoming will close the account.

Why would a Swiss Bank (or for that matter a Panamanian Bank, an Israeli Bank, or Hong Kong Bank) enter into an agreement like this with the IRS? The problem may be illustrated by a hypothetical private Swiss bank which has two customers; one a U.S. taxpayer with an account of $5,000,000 and the other with a North Korean dictator which contains $500 million. If the Swiss private bank allocates 10% of the dictator’s portfolio to the U.S. stock market, and generates $5 million in dividends the U.S. companies paying the dividends will be required to withhold 30% ($1.5 million) on its payments to the Swiss bank on behalf of the Korean dictator. Guess what. Either the Swiss bank will close the account of the U.S. taxpayer, or it will enter into an agreement so that it is not subject to the withholding requirements.

Of course there will always be small foreign offshore banks which will avoid U.S. investments entirely making it possible to avoid the impact of FATCA, and maintain U.S. customers. Still it requires finding one and constantly monitoring it to make sure that its policies don’t change. It makes tax evasion much more of an active process rather than simply keeping an existing structure in place. Another problem is the continued consolidation of foreign banking institutions. Let’s assume you start out with an offshore bank account at a small foreign bank in India which makes no U.S. investments. One or two years later it gets acquired by HSBC which I am guessing will have an agreement with the IRS. Now, even if you close the account quickly you may be swept into the FATCA reporting regime.

Tax evasion is no longer for the faint of heart. It will require a whole new skill level, and constant monitoring if offshore bank accounts are to be kept a secret.

Brager Tax Law Group has consulted with hundreds of clients who have offshore bank accounts. If you have a foreign bank account, and would like to discuss your options call for an appointment with our tax litigation lawyers.

FATCA Impacts Offshore Bank Accounts (Part I)

January 4, 2011,

FATCA (Foreign Account Tax Compliance Act of 2009) could be one of the final nails in the coffin for offshore bank account secrecy. FATCA imposes various reporting requirements on offshore banks referred to as foreign financial institutions or FFIs. When I first heard about FATCA after it was passed in March of 2010 I didn’t pay much attention. After all the tax lawyers at Brager Tax Law Group, a P.C. don’t represent any Swiss banks or other offshore banks so who cares. FATCA, however, has the potential to seriously disrupt bank secrecy and to bring individuals who currently maintain offshore bank accounts to the attention of the IRS.

In its simplest terms FATCA requires a 30 percent withholding tax on any "withholdable payment" made either to an FFI (e.g. an offshore bank) or certain other entities if it fails to comply with new reporting, disclosure, and related requirements. "Withholdable payment" includes U.S. source interest, dividends, rents, salaries, wages, premiums, annuities, compensation, as well as any gross proceeds from the sale or other disposition of property that can produce U.S. source interest or dividends.

Under the new requirements which are effective January 1, 2013 the 30% withholding applies unless the FFI enters into an agreement with the IRS to:

• Obtain information from each account holder as is necessary to determine which accounts are "U.S. accounts";

• Comply with verification and due diligence procedures (to be prescribed by the Secretary) with respect to the identification of U.S. accounts;

• Report annually certain information related to any U.S. account maintained by such institution;

• Deduct and withhold 30 percent on certain pass thru payments5 made to the benefit of an account holder that refuses to provide the required information (a "recalcitrant account holder");

Attempt to obtain a waiver in any case in which any foreign law would (but for a waiver) prevent reporting of information under the provision related to any U.S. account maintained by such institution and, if a waiver is not obtained, to close the account.

Under the agreement the offshore financial institution will provide:

• The name, address and taxpayer identification number ("TIN") of each account holder that is a specified U.S. person;

• The name, address and TIN of each substantial U.S. owner of any account holder that is a U.S. owned foreign entity;

• The account number;

• The account balance or value (as specified by the Secretary); and

• The gross receipts and gross withdrawals or payments from the account (as specified by the Secretary).

Alternatively the offshore bank could file Forms 1099 with the IRS. In any event more U.S. holders of foreign bank accounts will become known to the IRS in the near future. For more about how and why stay tuned for FACTA Impacts Offshore Bank Accounts (Part II).

If you haven’t filed FBARs and would like to discuss your options make an appointment with one of the IRS trained tax lawyers at Brager Tax Law Group, a P.C.