Tax Problem Attorney Blog

In the latest of a string of guilty pleas related to FBAR cases, Dr. Andrew Silva, a Virginia surgeon pled guilty to one count of conspiracy to impede the United States, and to making a false statement. Several interesting points about this tax fraud case.

• Dr. Silva inherited the Swiss bank account from his mother.
• Silva failed to file a Report of Foreign Bank Account, Form TDF 90-22.1 (FBAR), but was charged with other crimes instead.
• Silva met with a Swiss attorney who managed the Swiss Bank Account, and was advised to evade the currency reporting requirements by transporting less than $10,000 at a time to the U.S. Another case of bad advice by a Swiss attorney. Attempting to avoid the currency reporting requirements is a criminal offense known as “structuring.”
• Based upon news reports it appears that the Swiss bank account was held at HSBC . Previously the reported guilty pleas have involved funds at UBS.
• When Silva was told in late 2009 his Swiss bank account would be closed the Swiss banker refused to wire the funds, instead he was given $200,000 in hundred dollar bills which he mailed back to the US in 26 separate packages. These packages were seized by customs. More tax problems exacerbated by accepting at face value the “advice” of a Swiss banker.

For his troubles Silva could be sentenced to up to 10 years in prison, and pay a fine of up to $500,000. Silva has also agreed to forfeit the currency, and pay all of the unreported tax, interest and various penalties.

This case illustrates a classic example of making a tax problem worse by attempting to conceal what has happened. While it is dangerous to speculate without knowing all of the facts it is likely that Silva’s FBAR, and tax fraud violations came to light when he mailed the currency back to the U.S. Had he made a voluntary disclosure of the funds to the IRS, and insisted that his funds be wired to the U.S. it is likely he could have avoided his criminal tax problems.

If you have a foreign financial account call the tax litigation lawyers at Brager Tax Law Group for a consultation.

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Posted In: Offshore Bank Account Problems , Tax Fraud

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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.

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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.

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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.

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I lifted my nose up from filing Foreign Bank Account Reports (FBARs), talking to clients with offshore financial accounts, and filing for tax amnesty under the IRS Offshore Voluntary Disclosure program long enough to notice a speech that Senator Carl Levin had given in mid-September on the topic of offshore tax havens. Senator Levin has been battling against tax fraud committed through the use of offshore financial accounts for many years, and in the last year or two his ideas have been gaining more traction. The text of his speech is available here. A few highlights are worth repeating:

• Liechtenstein and Switzerland have reversed decades of resistance and agreed to enter into Tax Information Exchange Agreements in line with the model agreement developed by the Organization for Economic Cooperation and Development (OECD). Both countries have already initialed such agreements with the United States and other countries.

• G-20 leaders signaled a new willingness to take action against uncooperative tax havens, the changes made by Liechtenstein and Switzerland set off a chain reaction in other bank-secrecy nations. Places like Luxembourg, Austria, Andorra, Monaco, and others also pledged for the first time to share tax information and cooperate with international tax enforcement

• Offshore tax abuse needs to be taken into account when developing international trade policy. Specifically, there ought to be a policy against rewarding trading partners that refuse to adopt the growing global consensus against tax evasion. The nation of Panama, for example, hopes to conclude a free trade agreement with the United States in the near future. But at the same time, after pledging in 2002 to negotiate a tax information exchange agreement with the United States, Panama is stonewalling. The United States should insist that Panama and other nations agree to tax information sharing before extending to them the advantages of a free-trade agreement.

Clearly the pressure is mounting on secrecy jurisdictions, and as I have said before whether your offshore account information will find its way to the IRS immediately is unknown, and unknowable. Nevertheless the handwriting is on the wall, and in five or ten years from now the ability to commit tax fraud by hiding funds in an offshore bank account will probably be a quaint curiosity that you can tell your grandchildren about.

In the meantime, if you have offshore financial accounts you have less than two weeks, until Oct. 15th, to enter the IRS tax amnesty program.

If you would like advice and assistance from our former IRS tax lawyers call Brager Tax Law Group, A P.C. to arrange a consultation.

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Yesterday I started a blog post subtitled Why 70% of a Foreign Bank Account Is Better Than 100% of No Foreign Bank Account. It included three reasons why, if you have offshore financial accounts, filing for tax amnesty by the Oct. 15th may be a good idea. It doesn’t matter if your offshore bank account is at UBS, or some other foreign financial institution. Today I have listed three more reasons:

1. Legally “Launder” Your Offshore Funds.

If your money is an offshore financial account it is difficult to spend in the United States. Banks keep copies of offshore wire transfers, and are required to report suspicious transactions to the Internal Revenue Service (IRS). If you bring cash back to the United States in excess of $10,000 you must declare it. Over the years people have come up with many methods of bringing the money back to the U.S., including credit cards tied to their offshore bank accounts—some have gone to jail. Any actions to hide the existence of the foreign bank accounts, e.g. moving them one from one country to another, or investing the funds in offshore real estate to avoid the reporting requirements could be construed as money laundering subjecting you to further criminal penalties.

If you participate in the offshore tax amnesty program you will then be able to bring the money back to the U.S., and enjoy the fruits of your labors. Or if you wish, you can continue to invest it abroad—it’s your choice.

2. Avoid Passing Along Your Tax Problems When You Die

No one lives forever. If you continue to have foreign financial accounts when you pass on you will bequeath all of your tax problems to your children and your spouse. For example, the foreign bank accounts must be declared on your estate tax return. Leave them off, and your executor has committed tax fraud. Put them on the return, and expose the estate to years of back FBAR penalties at the 50% rate, potentially wiping out your entire legacy. In addition, if your children and/or spouse become owners of your foreign bank accounts upon your death they will now have to report those foreign bank accounts, or face the same set of tax problems that you have now.

3. Sleep Better At Night

The one question that clients ask most frequently is “What are the chances I will get caught?” It is also the one question I can’t answer. The IRS has promised to devote significant resources to finding everyone who has an offshore financial account. I can safely say they won’t. Whether or not you will get caught no one knows. Nevertheless, the potential consequences of getting caught are so severe you have to ask yourself is it worth even a 5% chance of going to jail and losing everything to save some money. My answer is “no.”

Your answer may differ, but you need to think about it, and have an answer before October 15th. After all, who would have thought five years ago that almost 5,000 people who had been made promises of iron clad secrecy by the Swiss would now have their foreign bank accounts turned over to the IRS?

If you have a foreign financial account, and would like to discuss your situation with our former IRS tax attorneys please contact the Brager Tax Law Group, A P.C.

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Why 70% of a Foreign Bank Account Is Better Than 100% of No Foreign Bank Account (Part I)

Clients sometimes ask why they should take advantage of the IRS Offshore Voluntary Disclosure Program. In it’s frequently asked questions regarding offshore financial accounts the IRS provided an example of what could happen to someone with a foreign bank account of $1million in 2003 that earns $50,000 per year who hasn’t filed Foreign Bank Account Reports, TD F 90-22.1 (FBAR). That person could, if they didn’t apply for tax amnesty, could incur taxes, penalties and interest of well in excess of $2.3 million. If the IRS determined that the non-reporting was due to tax fraud, the amount would be much higher. Under the tax amnesty, the amount due would be $386,000 plus interest. Nevertheless some people don’t want to file for tax amnesty. If the IRS example doesn’t convince you here are six more reasons.

1. Avoid Going to Jail

The failure to file an FBAR can result in criminal penalties of five years in jail and a fine of $250,000 or both for each year the FBAR is not filed. It is the policy of the Department of Justice to ask the court to impose actual prison time; probation is very rare in tax cases. If you are a CPA, a lawyer, or a doctor in addition to going to jail you will lose your license to practice so when you get out you will have difficulty finding a job. If you are not yet a citizen of the United States as a convicted felon you could be deported, or your ability to become a citizen could be impacted.

2. It’s Cheaper Than You Think.

The person in the IRS example pays about $386,000 on $ 1,300,000 of income if he participates in the tax amnesty. In the IRS example the first million dollars was earned prior to 2003, as a result that one million dollars is never taxed. Had the amount been properly reported tax of $455,000 would have been paid (assuming a 35% tax rate). If the unreported income prior to 2003 was greater the savings are greater. For example, assume $3,000,000 of unreported income prior to 2003, and the same amount of interest earnings between 2003 and 2008. The amount paid pursuant to the tax amnesty will increase to $786,000. However, had the income been properly reported the tax that should have been paid would have been $1,155,000. Not a bad deal when you think about it.

3. Avoid Committing Perjury in 2010

Every year when you file your income tax return you are required to answer whether or not you have a foreign bank account. If you answer no you have committed the felony of filing a false tax return punishable by 3 years in jail, and a fine of $100,000. Up until now some people could reasonably say that they didn’t understand the requirement, or that their accountant hadn’t asked them about it. When the time comes to file your 2009 tax return in 2010 you can be sure that your accountant will be asking about your offshore accounts. Some accountants may require you to sign a statement that you don’t have a foreign bank account in order to protect themselves. After this year it will be much more difficult to argue that you were ignorant of the law—even if it is true.

Closing the offshore account now won’t help. If an offshore financial account has more than $10,000 in it at ANY TIME during 2009 it must be reported in 2010.

Three more reasons tomorrow.

In the meantime if you have tax problems including an offshore financial account call the tax attorneys at Brager Tax Law Group, A P.C. for a consultation.

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The IRS announced that the Offshore Voluntary Disclosure program granting tax amnesty to those who failed to file Foreign Bank Account Reports, Form TD-F 90-22.1 (FBAR) has been extended. The new deadline for filing a request to participate in the Offshore Voluntary Disclosure program is Oct. 15th. The prior deadline for participating in the Offshore Voluntary Disclosure program was Sept. 23rd.

The IRS had previous announced in March of this year that individuals and entities who had an interest in offshore bank accounts, and who had failed to file FBARs who voluntarily came forward, and notified the IRS of the existence of their offshore financial accounts would qualify for a reduced penalty regime. Normally the penalty for failing to file an FBAR on Form TD-F 90-22.1 can result in a penalty equal to the greater of $100,000 or 50% of the balance in the offshore account. In addition, non-filers of FBARs could be subject to criminal tax penalties, as well as a civil tax fraud penalty of 75% of any taxes that were owed. For more details on potential penalties please review our earlier post.

The IRS has said it extended the deadline in response to the requests of numerous tax attorneys and other tax professionals who requested additional time. The IRS stated that there would be no further extensions of the deadline for the Offshore Voluntary Disclosure program.

We here at Brager Tax Law Group, A P.C. were happy to see the IRS extend the deadline for this tax amnesty program since we are still hearing from clients who have only recently become aware of the FBAR filing requirements.

If you would like to consult with one of the tax lawyers at Brager Tax Law Group, A P.C. please call our office for a consultation.

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Having spoken to hundreds of individuals who have offshore bank accounts, or who have clients with offshore bank accounts, or relatives with offshore bank accounts, or even a “friend” with an offshore bank account there are certain questions which continue to recur. I thought it would be helpful to answer a few of them today, and a few more over the next week.

Q: If I don’t apply for tax amnesty how will the IRS find out about my Swiss bank account.

A: The short answer is: Maybe they will, maybe they won’t, but the consequences of the Internal Revenue Service (IRS) finding out are very severe, and you have to decide whether you can live with that. Non-reporting of foreign bank or foreign financial accounts can result in criminal prosecution resulting in 5 years in jail, and a $250,000 fine.

Q: Can’t you tell me anything more about how the IRS will find out about my secret Swiss bank account if I don’t enter the IRS offshore voluntary disclosure program?

A: Many people engaged in tax evasion get caught when their ex-spouse, or a disgruntled employee turns them in. It never ceases to amaze me how two people who once loved each other have absolutely no qualms of seeing their ex go to jail. Others get caught by random tax audits. Then of course there was the case of LGT bank where the German government bribed a Liechtenstein bank official to turn over the names of hundreds of its clients. The names of a number of U.S. citizens on that list made its way to the IRS; and who would have guessed even two years ago that UBS in cooperation with the Swiss government would have been handing over almost 5,000 names of supposedly secret Swiss bank accounts?

Q: Does the IRS really put people in jail for not filing Foreign Bank Account Reports TD F 90-22.1 (FBARs)?

A: Up until recently there have been very few prosecutions related to offshore bank accounts. In the last few months the IRS has stepped up the number of cases with four guilty pleas. The IRS says it has about 150 cases of offshore tax evasion involving UBS Swiss bank accounts being looked into by its Criminal Investigation Division. I expect that many of those cases will end with criminal tax prosecutions.

If you would like more answers to your FBAR questions you can seek advice from the former IRS tax attorneys at Brager Tax Law Group, A P.C.

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Less than 10 shopping days before the Internal Revenue Service (IRS) Foreign Bank Account Report Tax Amnesty ends. September 23rd is the last day that owners of Swiss Bank Accounts, and other foreign financial accounts have to disclose their offshore holdings to the IRS Criminal Investigation Division in order to escape criminal tax prosecution, and take advantage of the lower civil tax penalties being offered by the IRS as part of its Offshore Voluntary Disclosure Program a/k/a offshore tax amnesty.

Those who fess up before that date will not only be spared the possibility of jail time, but will also be eligible for reduced penalties. The normal civil penalties for failing to file a Foreign Bank Account Report, TD F 90-22.1 (FBAR) is the greater of $100,000 or 50% of the balance in the account. The FBAR penalty can be imposed for each year there is a balance in the combined accounts greater than $10,000. The civil tax fraud penalty is 75% of the amount owed. For a more detailed list of possible penalties I have them listed here.

Our tax litigation attorneys are consulting with dozens of clients with offshore bank accounts. If you would like our advice contact Brager Tax Law Group, A P.C.

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UBS has agreed to reveal the names and account information of 4,450 U.S. persons who are owners of UBS Swiss bank accounts who the Internal Revenue Service (IRS) believes have committed tax fraud. Clearly Swiss bank secrecy has more holes than Swiss cheese. The names will be revealed under the following procedure. UBS will notify its customers who are on the list that their names are to be turned over to the IRS. Those Swiss bank account owners who believe that doing so is in violation of Swiss law will be entitled to a decision from the Swiss Federal Tax Authority (SFTA) as to whether the turnover is legal. The Swiss have committed to processing any requests by the IRS so that the first 500 UBS Swiss bank accounts will be turned over within 90 days of the formal request by the IRS to the Swiss, and the last of the Swiss bank account names are to be turned over within one year.

Of course the names of who is on the list has not been disclosed, nor have the criteria for which Swiss bank accounts will be on the list been revealed. No such information is expected for 90 days. Clearly the intent is that some of the Swiss bank account owners who are not on the list, but don’t know they are not on the list will be motivated to participate in the IRS tax amnesty program which closes September 23rd.

Our tax attorneys are counseling many clients on the ins and outs of the IRS voluntary disclosure program. If you have a foreign bank account, and are interested in finding out more, please contact the tax litigation lawyers at Brager Tax Law Group, A P.C.

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A Los Angeles, California man pled guilty to one count of failing to file a Foreign Bank Account Form TDF 90.22-1 (FBAR) pursuant to the Bank Secrecy Act 31 USC 5314. This is the fourth person with a UBS Swiss bank account to plead guilty to tax evasion charges. John McCarthy admitted that he skimmed funds from his business, and sent it to an offshore bank account at UBS held in the name of his Hong Kong corporation. According to the plea agreement it was UBS, and his Swiss lawyers who came up with this idea that created all of McCarthy’s offshore tax problems. The IRS found out about McCarthy when UBS turned over his name as part of the criminal tax case against UBS that was resolved earlier this year. The maximum penalty that the Court can impose is five years in prison; a fine of $250,000, or twice the amount of gross gain or loss from the offense whichever is greater. Sentencing hasn’t yet occurred. In addition, McCarthy agreed to civil FBAR penalties equal to 50% of the highest year balance in the account will be imposed, along with a 75% civil tax fraud penalty.

Most interesting to me about the case is that the IRS is reaching lower down the food chain. The amount of the unpaid tax was somewhere between $200,000 and $400,00 spread over a 5 year period. Assuming a 33% tax rate this suggests unreported income of as little as $120,000 per year. While this is hardly chicken feed, it shows the IRS willingness to prosecute medium size tax evasion cases.

If you have a foreign financial account, or any kind of tax problem contact the tax lawyers at Brager Tax Law Group, A P.C.

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On Wednesday, the UBS offshore tax evasion case moved one step closer to UBS disclosing the names of persons the IRS believes have committed tax fraud and/or failed to file TD F-90-22.1, Foreign Bank Account Report (FBAR). The IRS announced that it had “initialed a settlement” with the Swiss government to settle the suit seeking the names of 52,000 U.S. persons with offshore UBS bank accounts. The terms of the settlement has not yet been disclosed, but most tax attorneys believe that it will require UBS to provide the names of thousands of Swiss bank account holders. The IRS has said that the terms will not be disclosed until final signatures have been obtained on the settlement, and that could occur as early as next week.

Some tax lawyers speculate that it will be only the names of the largest UBS account holders that will be disclosed, but I tend to disagree. Any settlement would have to provide the Swiss with a fig leaf to argue that they had not compromised their privacy laws. One way of doing this would be to loosen the interpretation of tax fraud under Swiss law, and provide the names of individuals who engaged in some activity suggesting they were covering up the existence of the offshore account. For example, holders of numbered accounts, or accounts held in the name of dummy corporations or trusts, or perhaps dual citizens of the U.S. and other countries who did not use their U.S. passports to open the accounts.

Once the settlement terms have been announced it is unknown how quickly names of UBS Swiss bank account holders will be turned over. However, once the IRS has the names it will be too late for those individuals to participate in the IRS tax amnesty, and receive the benefits of the offshore voluntary disclosure program.

If you have questions about the FBAR tax amnesty or have other tax problems feel free to contact the tax controversy lawyers at Brager Tax Law Group, A P.C.

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On Friday it was announced that UBS and the Internal Revenue Service had reached a settlement in the IRS lawsuit against UBS. The lawsuit sought to require UBS to turn over the names of 52,000 U.S persons with Swiss bank accounts at UBS. The IRS believes that the owners of some of these offshore accounts failed to file foreign bank account reports (FBARs), and may also have engaged in tax fraud. Settlement negotiations have been ongoing, and apparently those discussions have focused on how many offshore account holder names will be turned over to the IRS. The terms of the deal have not been announced, and the parties have agreed not to reveal the details at this time. The final settlement papers are due to be filed on August 7th, at which point I expect that the IRS will reveal how many offshore account holders names will be turned over.

This puts the holders of offshore financial accounts at UBS in a precarious position. Once UBS turns over the information those folks will no longer be eligible to make a voluntary disclosure under the IRS tax amnesty program, and will subject the owners of these Swiss bank accounts at risk for the 50% FBAR penalty, possible criminal prosecution for tax evasion, and a pile of other tax problems.

UBS Swiss bank account holders would be well advised to speak with a tax attorney to decide whether or not to participate in the tax amnesty because the window may be closing very shortly.

The former IRS tax attorneys at Brager Tax Law Group, A P.C. are ready to advise offshore bank account holders of their options.

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As pointed in my previous blog post the hearing in the IRS effort to enforce its John Doe Summons in the UBS Offshore Bank Account case had been delayed by mutual agreement with a status conference to be held on Wednesday, June 29th. According to an article by Tom Brown published by Reuters, at the status conference the parties announced that no settlement had been reached in the highly watched case in which the Internal Revenue Service seeks to obtain the names of 52,000 UBS offshore account holders who the IRS believes may have committed tax evasion, and who probably failed to file foreign bank account reports (FBARs). Judge Gold, the federal district court judge presiding over the case stated that “absent a signed settlement agreement” no requests for delay would be considered, and that trial of the UBS case would proceed to trial on Monday, August 3rd.

If you have a Swiss financial account, or an offshore account outside the United States, now is the time to consult with a tax attorney to find out whether or not you should make a voluntary disclosure, and participate in the IRS tax amnesty program.

If you have further questions, feel free to arrange a consultation with the tax litigation attorneys at Brager Tax Law Group, A P.C.

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The past few months have been filled with contention from the Swiss government and UBS in response to the Internal Revenue Service’s (IRS) “John Doe Summons,” which seeks to have UBS turn over the names of their US account holders. So far, UBS has been unwilling to provide the names of all but 250 or so Swiss bank accounts holders. UBS officials argue that disclosing names is a violation of Swiss law.

Several days ago Department of Justice (DOJ) filed a legal brief arguing that its summons to obtain offshore bank account information is enforceable under both US and Swiss law. DOJ points out that Swiss secrecy laws provide disclosure exceptions for certain circumstances – such as when providing information to an “authority,” and if approved by a UBS “regulator.” The fact that the law explicitly states there are exceptions, and that a person who violates this law can be exonerated in certain circumstances, leads the DOJ to conclude that Swiss law permits UBS to release the names of US taxpayers with offshore accounts.

Without commenting on the merits, it would seem that those with Swiss bank accounts have two basic choices:

1 - They can wait until the case is resolved, hoping that the IRS loses and UBS Swiss bank accounts remain secret. This option carries the risk of prosecution for criminal tax fraud and onerous civil tax penalties for failure to file foreign bank account reports (FBARs) in the event that the IRS prevails; or

2 - They can come forward now while the IRS still has its tax amnesty program, and protect themselves from criminal tax charges. Before coming forth under the tax amnesty program anyone with an offshore bank account, whether held at UBS or elsewhere, should consult with a knowledgeable tax attorney to determine if a voluntary disclosure is right for them.

If you have a UBS or other offshore bank account and have questions about avoiding tax evasion charges, or would like more information about the IRS Amnesty program, or have any other tax problems, contact the tax litigation attorneys at Brager Tax Law Group, A P.C.

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When the Internal Revenue Service (IRS) released its FBAR tax amnesty FAQs it stated that there would be no standard list of questions asked of foreign bank account holders who made a voluntary disclosure. The Wall Street Journal reported that at least one tax attorney has stated that his clients have been asked 30 standard questions. None of the questions are particularly surprising and are in line with questions our clients have been asked under the IRS’ previous voluntary compliance initiative (VCI). Nevertheless no-one who is filing for the FBAR tax amnesty should consider answering them without a tax attorney present, and maybe not even then. The questions appear designed to probe for signs of tax evasion, or tax fraud, as well assure the IRS that all Foreign Bank Account Reports Form 90-22.1 (FBARs) being filed are accurate. More troubling to tax preparers is that some of the questions are also designed to see if the tax preparer was complicit in the non-filing which could expose him or her to tax preparer penalties, or even criminal tax charges. It seems a CPA or other tax preparer who prepared the original tax returns must consider very carefully whether he has a conflict of interest before he represents that person in making a voluntary disclosure.

According to the Wall Street Journal those questions were:

• Is it your statement that the tax payers are willing to comply with the IRS and make a good faith arrangement to pay all taxes, penalties, fees and interest?
• Where are the funds held regarding the disclosure?
• Do you have any records? If not, whom are you working with at the bank? (Note: If the taxpayer is a UBS client and if they don't have the records, IRS will attempt to assist them in record retrieval).
• When was the account opened?
• How was the account opened?
• Who assisted you with the account opening?
• Who told you about the bank and how to initiate opening of the account?
• Do you have a trust set up relating to the account or the funds?
• How did you deposit money into the account?
• How did you withdraw money from the account?
• Did you have any credit or debit cards associated with the account?
• How did you correspond with the bank? Do you have records relating to the correspondence?
• Who is your current point of contact at the bank?
• Did you ever meet face to face with anyone from the bank? If so, where? When?
• Did you travel outside of the U.S. to conduct business relating to your account and or tax activities?
• Where was your bank statements sent?
• Who has ownership of the account? Is it a joint account?
• What is the source of the funds?
• Do you have tax returns?
• Have you prepared amended tax returns? If so, have you submitted them to the IRS?
• Who prepared your returns?
• When were your returns prepared?
• Did they know about the issues discussed today?
• Did you file FBARs? If not, why not?
• (For those who inherited the account) when did you take control of this account? And, all the related questions a 'yes' answer makes us ask.
• Did you trade US and/or foreign securities with this account? If yes, describe the mechanism for doing that (buy/sell orders, etc.)?
• Did you file returns?
• Do your or have you directly or indirectly controlled any foreign entities? Did you file the required returns for them?
• For UBS clients in particular – Have you been notified that the US requested information relating to your accounts?
• What countries do you have accounts in?

If you have questions about the questions, feel free to contact the tax attorneys at Brager Tax Law Group, A P.C.

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Posted In: Offshore Bank Account Problems , Tax Disputes , Tax Fraud , Tax Litigation and Tax Controversy

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The hearing on the John Doe summons enforcement case brought by the IRS to obtain the names of 52,000 UBS clients who may have committed tax fraud through the use of offshore financial accounts has been delayed. The key phrase is MAY have committed tax fraud. Generally, under the terms of the existing treaty with Switzerland, the IRS must have evidence of tax fraud or tax evasion before the Swiss will turn over offshore bank account information. The IRS currently lacks the necessary information.

The hearing which was scheduled to begin on Monday was postponed based upon a joint request by the IRS and UBS in order to give them more time to negotiate a resolution. A status conference has been set for July 29th.

The IRS announced on Sunday that any settlement would require that UBS turn over the information on a “significant number” of individuals with Swiss bank accounts at UBS. According to an article in Timesonline by Christine Seib, there was speculation the IRS would insist on between 7,000 and 19,000 names.

As my readers know, persons subject to U.S. jurisdiction with signature authority over, or a financial interest in, an offshore financial account must report that offshore financial account to the IRS on TD F 90-22.1 Foreign Bank Account Report (FBAR) form.

The key question that remains is whether the announcement suggests that individuals with secret foreign bank accounts should take advantage of the current tax amnesty, or continue to hope that UBS will not be forced to turn over the names.

Given the potential for criminal tax penalties, as well as civil penalties for tax fraud; not to mention an FBAR penalty of 50% of the balance in an offshore bank account, this question can only be answered after consultation with a knowledgeable tax attorney who knows all the facts of your case.

If you would like a consultation with a tax litigation attorney at the Brager Tax Law Group, please give us a call.

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Posted In: Offshore Bank Account Problems , Tax Fraud , Tax Litigation and Tax Controversy

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The Swiss government has threatened to seize UBS Swiss bank account records that belong to U.S. citizens rather than allow that information to fall into the hands of the Internal Revenue Service (IRS). The Swiss made the statement in a court filing in the UBS summons lawsuit pending in District Court in Miami, Florida.

Does this mean that U.S. taxpayers who have offshore accounts, and who committed tax fraud or tax evasion can sleep more easily at night? Maybe. The Swiss and the IRS are engaged in a high stakes poker game. No one knows how it is going to turn out. Even if the IRS doesn’t get the information in this so-called John Doe summons case there are numerous other ways it can come to the attention of the IRS. For example, most tax fraud comes to light when an unhappy spouse or employee turns informant. Last year the story broke of how a bank employee at LGT in Lichtenstein was bribed by German officials to turn over secret offshore bank account records, which the Germans in turn handed over to the IRS.

U.S. citizens and residents who have Swiss bank accounts at UBS have a lot at stake. Even if they paid the bulk of their taxes they could be liable for Foreign Bank Account Report (FBAR) penalties equal to 50% of the balance in their account.

If you have an offshore bank account at UBS or anywhere else in the world, now is the time to consult a tax lawyer to understand your options, and see if the IRS tax amnesty makes sense for you. If you would like a consultation with the tax litigation attorneys at Brager Tax Law Group, A P.C. please call us.

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I have been speaking a lot lately to the Internal Revenue Service’s (IRS) FBAR (Foreign Bank Account Report) tax amnesty hotline to obtain answers to the many practical questions that have arisen under the IRS FBAR Tax Amnesty a.k.a. Voluntary Disclosure Program. One question I have had is, “Where in the country will the civil tax audits under the tax amnesty program take place?” The agent that I spoke with at the tax amnesty hotline told me the current belief among IRS employees is that the tax audits will be centralized. Twenty revenue agents have undergone tax amnesty training in New York, and additional revenue agents will be trained — probably in California.

According to what I was told, the tax amnesty revenue agents have only just begun looking at civil tax audits, and these are for voluntary disclosures that were made before the IRS issued its tax amnesty guidelines. My guess is that voluntary disclosures being filed now will not undergo a civil tax audits by the IRS for another 6 months.

If you are considering a voluntary disclosure under the IRS tax amnesty program, contact the tax attorneys at Brager Tax Law Group, A P.C. for a consultation. No one should consider contacting the IRS without first having spoken with a qualified tax litigation attorney who understands all of the details of your case.

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The IRS has just issued new FAQs related to the tax amnesty for failing to file Foreign Bank Account Reports (FBAR). There are 21 new FBAR FAQs. I wanted to make them available as quickly as possible so haven’t had much time to think through all of their implications. However, a major disappointment is FBAR FAQs # 34 and 35. They say that the IRS will not negotiate the 20 percent offshore financial account penalty as part of the FBAR voluntary disclosure process. The IRS says that if any part of the penalty structure is unacceptable, the case will follow the standard audit process. According to the IRS, “At the conclusion of the examination all applicable penalties (including information return and FBAR penalties will be imposed)…” For a recap of potential FBAR and other penalties see my prior post. If the taxpayer disagrees with the imposition of the penalties then the taxpayer may go to the IRS Appeals Division.

It is unfortunate that the IRS has chosen to take this draconian stance with respect to the FBAR amnesty. It makes the decision to come forward much more difficult.

Our tax litigation attorneys are currently advising clients with FBAR problems on how to best proceed. If you would like a consultation contact the tax attorneys at Brager Tax Law Group, A P.C.

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The U.S. Treasury has announced an agreement with Switzerland to amend the Swiss U.S tax treaty to allow the U.S. to more easily locate those engaged in tax fraud and tax evasion. The Swiss – U.S. treaty would be amended to comply with Article 26 of the Organization for Economic Co-operation and Development (OECD) Model Income Tax Convention. Treasury Secretary Tim Geithner stated "This Administration is committed to reducing offshore tax evasion to help ensure that all U.S. taxpayers are playing by the same rules. "This treaty will increase our ability to enforce our tax laws and will help bring an end to an era of offshore accounts and investments being used for tax evasion."

The treaty must still be approved by the Swiss Parliament. At this point it is not known what effect this will have on the UBS summons enforcement action in Florida in which the Internal Revenue Service is attempting to obtain the names of over 50,000 UBS customers with offshore accounts who may have committed tax fraud or tax evasion.

If you have a Swiss financial account or other offshore bank account, the deadline is June 30th for filing an FBAR with the IRS. If you need to make a voluntary disclosure under the IRS Tax Amnesty, contact the tax controversy attorneys at Brager Tax Law Group, A P.C.

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In an address to the Organization for Economic Co-Operation and Development (OECD) on June 2, 2009, IRS Commissioner Douglas Shulman announced renewed IRS efforts to combat international tax fraud and tax evasion.

Shulman promised to create an inhospitable climate for tax evasion and offshore secrecy by continuing and expanding cooperation with G-20 heads of state, who pledged in unity this April to act against tax havens that impede legitimate tax enforcement. He hopes to enhance information reporting on offshore account holders, increase tax withholding on U.S. citizens with foreign bank accounts in countries deemed "tax havens," double tax penalties for failure to file FBARs, and allow the IRS more time for investigation by increasing the statute of limitations from three years to six years.

The IRS’ effort to eliminate tax fraud and tax evasion is supported by the expansion of President Obama’s 2010 budget. The budget provides funds for increased reporting on cross-border wire transfers, which would allow the IRS to gather information and target individuals who transfer money to and from offshore accounts. Also included is funding for 800 new employees who will deal specifically with international tax enforcement.

In his address to OECD, Commissioner Shulman promised, “If you are a U.S. taxpayer holding overseas assets, you must pay your taxes or we will be very focused on finding you. It’s as simple as that.”

If you have an offshore bank account and have not filed an FBAR, you may wish to consult with a tax attorney at Brager Tax Law Group, A P.C. to understand whether or not you have a tax problem.

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In conversations with the IRS Foreign Bank Account Report (FBAR) hotline, I have been told that the IRS plans on issuing a second FBAR FAQ to supplement the first FBAR FAQ which was issued by the IRS only last month. As readers of this blog know, the first FBAR FAQ was issued to answer questions required the IRS Tax Amnesty program for unreported offshore financial accounts. Once the new FBAR FAQ has been issued by the IRS I will be posting a link to it here on our blog.

If you have an offshore tax problem contact the tax controversy lawyers at Brager Tax Law Group, A P.C. to have a consultation which will be covered by the attorney client privilege.

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I have been and will be speaking to several CPA firms as well as various California CPA Society groups regarding the tax problems that have been generated by the failure to file Foreign Bank Account Reports (FBARs), TD 90-22.1, and a possible solution through the Internal Revenue Service’s voluntary disclosure program. I have prepared an outline that I have distributed, entitled “FBARs and Voluntary Disclosure”, which is now available on my website. In addition to some of the topics that I have discussed in my blog, the outline references the issues that CPAs, and other non-tax attorneys face when their clients disclose the existence of offshore bank accounts because the information their clients provide is not privileged, and the non-tax lawyer can be forced to disclose these client confidences to the IRS.

If your clients have undisclosed offshore accounts, and you wish to discuss their tax problems call the tax controversy attorneys at Brager Tax Law Group, A P.C.

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The Internal Revenue Service (IRS) has issued FAQs related to its offshore tax amnesty. As I have previously documented on March 23rd, the IRS announced a “tax amnesty” for owners of Swiss and other offshore accounts who failed to file TDF 90-22.1 (Report of Foreign Bank and Financial Account) a/k/a an FBAR. Under the offshore voluntary disclosure program a taxpayer who makes a voluntary disclosure in a timely manner can limit his penalties to 20 per cent of the highest balance in his offshore accounts during the 6 year lookback period, and avoid criminal tax penalties, along with the 75 per cent civil tax fraud penalty. In addition he must pay the income tax due for the last 6 years, plus a 20 per cent accuracy penalty under IRC Section 6662, along with interest.

The terms of the offshore voluntary compliance program as announced left many questions unanswered. Although the FAQs fills in some holes in the offshore tax amnesty program it still leaves gaps. For me the FAQ answers several key questions:

1. How is the 6 year lookback period calculated?

Under the tax amnesty taxpayers are responsible for the 2003 to 2008 tax years.

2. Are “quiet disclosures” acceptable?

No. Taxpayers must make a “noisy disclosure” by contacting the IRS Criminal Investigation Division. Filing amended income tax returns and FBARs is not sufficient.

I will try and post additional information over the next few days.

I would point out, however, that the FBAR FAQs still leaves unanswered the question of whether, under appropriate circumstances, the IRS will negotiate lower FBAR penalties under previously issued FBAR guidelines.

If you have a UBS bank account, or any offshore bank account, and would like further information about the IRS voluntary disclosure program, contact the tax problem attorneys at Brager Tax Law Group, A P.C.

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Reuters has reported that the IRS is set to serve summonses on foreign banks to obtain the names of U.S. citizens who may have committed tax fraud and buried the proceeds in Swiss or other offshore bank accounts. As I have previously blogged, the IRS is already involved in tax litigation with UBS seeking the names of 52,000 holders of Swiss bank accounts.

The Reuters revelation is not good news for those with offshore bank accounts who were hoping to keep them secret from the IRS. Even taxpayers who have reported all of the income that was used to fund the offshore accounts are at risk for a 50% FBAR penalty.

We are now reviewing with some of our clients the advisability of taking advantage of the IRS tax amnesty that is available until September 22nd.

If you would like advice on the IRS voluntary disclosure program or any other tax problem contact the tax controversy attorneys at Brager Tax Law Group, A.P.C.

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According to a report on Reuters, UK, Manhattan District Attorney Robert Morgenthau said New York State investigators are looking for more cases like the one in which London-headquartered Llyods agreed in January to forfeit $350 million to the United States and New York in connection with faking records related to clients from Iran.

Morgenthau said he was going to Washington to work on expediting the investigations. Although it appears that the New York investigations are centered on money laundering violations by banks and financial institutions, it is probable that evidence will be uncovered relating to individuals with offshore accounts; and such information will be turned over to the IRS, triggering tax fraud and FBAR violation investigations.

Morgenthau's biography highlights that as a U.S. Attorney, he prosecuted tax fraud cases.

If you have an offshore bank account, you should contact a tax litigation attorney to discuss the current IRS "tax amnesty" before the deadline in September passes.

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FBARs (TD F 90-22.1 Report of Foreign Bank and Financial Account) must be filed by U.S. Citizens and residents who have signatory authority over, or a financial interest in a foreign bank account, or other financial account located in a foreign country. This is a topic that I have previously blogged on. Perhaps less understood is that even those who are not citizens or green card holders may be required to file FBARs if they have offshore accounts. The instructions to the FBAR form make clear that persons who are in, and doing business in the United States must also file the FBAR if they have an offshore bank account.

The Internal Revenue Service (IRS) FAQ on FBARs, however, states that this does not include athletes and entertainers who occasionally come to the U.S. to perform.

Whether or not you are a U.S. Citizen or resident, if you have an offshore bank account and have not filed an FBAR, you may wish to consult with a tax attorney to understand whether or not you have a tax problem.

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According to a report in the New York Times by Lynnley Browning, the Internal Revenue Service (IRS) has announced in a press release that is has applied for permission to serve a John Doe Summons on First Data Corporation. First Data is a leading processor of credit card payments. The information sought by the IRS is expected to be used to identify businesses that have opened offshore bank accounts, and directed the card processor to deposit the proceeds in these offshore accounts. Even if the merchant didn’t use the account to commit tax fraud, the merchant would still be required to file an FBAR form with the IRS.

Clients often ask me something like, “How will the IRS know that I have put my funds in a Swiss bank account?” I usually respond, “I don’t know for sure, but what I do know is if they find out you are not going to be happy with what happens next.” Even assuming that the IRS doesn’t get the information directly from the foreign bank this summons is just one example of the IRS obtaining data in ways which might not be immediately apparent to the casual observer.

I have previously blogged about the tax amnesty for holders of offshore accounts. This new lawsuit is yet another reason why those with offshore accounts need to consult with a tax attorney to determine whether or not a voluntary disclosure makes sense.

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Over the last few days I have blogged about the IRS "tax amnesty," or settlement initiative, for owners of offshore bank accounts who make a voluntary disclosure to the IRS concerning the existence of those offshore bank accounts. It is because the potential tax penalties are so severe that the IRS settlement initiative may be attractive.

The following chart is from the IRS website and sets forth the civil tax penalties and the criminal tax penalties that may be asserted for not complying with the FBAR reporting and record keeping requirements. The citations are to the Bank Secrecy Act, and the code of Federal Regulations; not the Internal Revenue code.

The chart does not include the civil tax fraud penalty under the Internal Revenue Code which is 75% of the understatement of tax, or the accuracy related penalty of 20% of the understatement of tax.

If you have a Swiss bank account or an offshore bank account in another country, you may wish to contact the tax litigation attorneys at Brager Tax Law Group to see whether a voluntary disclosure makes sense for your situation.

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On April Fool’s Day, with no apparent sense of irony, the Internal Revenue Service (IRS) filed a criminal tax complaint against Steven Michael Rubinstein, an accountant, but apparently not a Certified Public Accountant (CPA), charging him with one count of filing a false tax return pursuant to Internal Revenue Code Section 7206(1). According to the criminal complaint, Rubinstein failed to disclose that he had an interest in, or signatory authority over UBS Swiss bank accounts. Apparently this is the first criminal tax fraud case the IRS has filed involving a UBS Swiss bank account holder.

As readers of this blog know, holders of offshore bank accounts with a balance of over $10,000 are required to disclose the existence of the account on Form 1040, Schedule B. In addition, owners of such accounts must file a Form 90.22-1 (aka an FBAR) separate from the tax return. Failure to file an FBAR is a separate crime. Rubinstein’s name was turned over to the IRS by UBS pursuant to the deferred prosecution agreement that it entered into with the IRS. Although only the 2007 tax year was charged, according to the criminal complaint, Rubinstein had a Swiss bank account at least since 2001. The complaint does not indicate whether or not Rubinstein failed to declare income, other than the income generated by the Swiss Bank account itself. However, at some point there was at least $3 million in the offshore bank accounts, and perhaps more.

The filing of the tax fraud charges illustrates the potential dangers of waiting too long to file a voluntary disclosure with the IRS. According to an article in the New York Times by LYNNLEY BROWNING there are 100 open tax fraud investigations in the UBS matter.

If you have tax problems including an offshore bank account call the tax lawyers at Brager Tax Law Group, A P.C.

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The other day I blogged about the new Internal Revenue Service (IRS) tax amnesty for holders of Swiss and other offshore bank accounts who make a voluntary disclosure. I called it a “break.” Upon further reflection I think that the tax amnesty is a blunt instrument rather than the scalpel that was needed. Consider these two examples:

Mr. E.Z. Going sold his business six years ago, paid tax on the sale, and put the proceeds of $1,000,000 in a Swiss bank account because he was concerned about potential lawsuits against him, and he had been told that putting your assets in an offshore bank account will help protect assets from frivolous lawsuits. Each year he has trading losses, and over the next six years he loses about $300,000. In addition, over that period he withdrew another $100,000 to pay for his daughter’s college education, leaving $600,000. He didn’t give too much thought to mentioning the existence of the account to his Certified Public Accountant (CPA) since he was losing money, not making money. If he makes a voluntary disclosure, E.Z. Going will be subject to a penalty of $200,000—20% of the high balance in the account.

In contrast take a look at Mr. Tax Fraud. Mr. Tax Fraud owns a restaurant, and every year for the past six years he has skimmed a little over $150,000 per year in cash, and not reported it on his tax return. Instead he travels several times each year with the cash in a suitcase to Switzerland. Mr. Tax Fraud has been advised by his friendly UBS banker to set up a trust in Lichtenstein to further disguise the ownership of the offshore bank account. Each year the Swiss bank account earns some interest, and as a result by 2008 he has $1,000,000 in the account. If he makes a voluntary disclosure Mr. Tax Fraud will pay the same $200,000 penalty.

In addition, Mr. Fraud will have to pay the back taxes (which Mr. E.Z. Going has already paid in a timely manner), plus interest, and a 20% penalty on the additional tax due. However, Mr. Fraud has skated on the 75% tax fraud penalty, as well as other penalties related to the non-filing of Forms 3520. Furthermore, he dodged potential penalties for the transporting currency, and failure to file the appropriate reports. Mr. E.Z. Going was never at risk for any of these tax penalties. Clearly, Mr. Tax Fraud is getting a much better deal.

It is very unfortunate that the IRS has failed to take into account these very different circumstances in structuring its tax amnesty.

Determining how to proceed in light of the new tax amnesty definitely requires a tax lawyer to avoid making a bad situation worse.

If you would like help with your offshore bank accounts, or other tax problem contact the tax litigation attorneys at Brager Tax Law Group, A P.C.

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The Internal Revenue Service (IRS) has issued guidelines for resolving the civil tax penalties related to offshore bank accounts for individuals who make voluntary disclosures. Generally it will require:

• Payment of all taxes and interest for the previous six years.
• Assessment of an accuracy penalty under Internal Revenue Code Section 6662 or a delinquency penalty for all years
• An FBAR penalty of 20% of the highest account balance during the six year period.

In the case of inherited accounts, or other accounts that the taxpayer did not cause to be opened the penalty may be reduced to 5% if other qualifications are met.

Under the settlement initiative taxpayers will not be assessed tax fraud penalties under IRC Section 6651(f) or IRC Section 6663. These tax fraud penalties are 75% of the unpaid tax. In addition the taxpayer would not be liable for the full amount of the FBAR penalties which can equal to 50% of the account balance per year!

This offer is only open to taxpayers who make voluntary disclosures by September 23, 2009. Taxpayers must fully cooperate with the IRS in any civil or criminal investigation in order to take advantage of these terms. Taxpayers can expect detailed questions from the IRS regarding how they came to open their offshore bank accounts, and will be required to name names. We expect that the IRS will use this information to open tax audits of taxpayers who do not come forward.

One area that will need to be evaluated is whether or the IRS will offer the favorable settlement terms to taxpayers who unbeknownst to the taxpayer have already been outed. Normally if the IRS is already aware that a taxpayer has a foreign bank account any subsequent disclosure will not be considered a voluntary disclosure, and could still leave the taxpayer open to both civil and criminal tax penalties.

We are working with our clients to initiate and perfect voluntary disclosures to the IRS where appropriate. If you have an offshore bank account, or any other tax problem contact the California tax lawyers at Brager Tax Law Group, A P.C.

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UBS AG, has agreed to pay $780 million in order to avoid prosecution for conspiring to commit tax fraud in violation of 18 USC 371. UBS entered into a deferred prosecution agreement. The exhibits are here and here. As part of the deferred prosecution agreement, UBS admitted that it participated in a tax fraud scheme, and that UBS bankers facilitated U.S. taxpayers in establishing accounts at UBS in a way intended to conceal the U.S. taxpayers’ ownership in the accounts. It appears that the amount of the settlement might have been higher, but for the current financial crisis, and the input of the Federal Reserve Bank of New York.

Most importantly, for U.S. clients concerned about their own exposure for tax evasion, or tax fraud, UBS agreed to provide the identities and account information of some of its United States clients. The exact scope of the disclosure is set forth in a letter between UBS and the Department of Justice, but that letter is under court seal. Ominously, the information filed against UBS referred to some of the 20,000 U.S. account holders as “unindicted co-conspirators.”

It seems clear that not all of the names of U.S. account holders are being turned over. The agreement does not end the summons enforcement action pending against UBS requiring it to disclose offshore bank accounts of U.S. clients. Indeed, the agreement provides that UBS is not prohibited from continuing to assert its defenses in the summons enforcement proceeding. There has been some speculation that UBS is only turning over the names of about 250 clients that are known to have committed “tax fraud or the like” under Swiss law.

The deferred prosecution agreement provides for UBS’ continuing cooperation with the government in any criminal tax investigation, tax fraud or tax evasion case, or any other civil or criminal proceeding brought by government in connection with the Internal Revenue Service (IRS) investigation into offshore accounts.

The good news is that IRS Commissioner Doug Shulman has been quoted as saying that: “People who have hidden unreported income offshore need to get right with their government. They should come forward and take advantage of our voluntary disclosure process." This suggests that despite the fact that the wolf is at the door the IRS may still consider a filing at this stage to be a voluntary disclosure that could stave off criminal tax charges.

If you have an offshore bank account, you can contact the tax lawyers at Brager Tax Law Group, A P.C. to help determine if a voluntary disclosure makes sense for you.

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According to a report on CNBC.com the Senate Permanent Subcommittee on Investigations will be holding further hearings on the Internal Revenue Service (IRS) attempts to obtain the names of thousands of UBS clients who may have committed tax evasion through the use of Swiss Bank accounts. The hearing is scheduled for Feb. 24th, and the Subcommittee will announce on Feb. 20th the names of the witnesses who have been asked to testify.

As we noted in a previous post, in June of last year a judge in Miami, ordered UBS to turn over a list of its American clients who held offshore accounts at UBS. Although UBS said it would cooperate almost 8 months later the records have not been turned over. Apparently the IRS is trying to ratchet up the pressure on UBS to turn over its records.

Taxpayers who have Swiss bank accounts, whether at UBS or elsewhere are well advised to consult with a knowledgeable tax attorney to determine whether or not they should consider turning themselves in to the IRS pursuant to its voluntary disclosure program in the hope of avoiding tax fraud or tax evasion charges.

If you have an offshore bank account, and need advice contact the tax litigation attorneys at Brager Tax Law Group.

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According to a report in the Wall Street Journal the Internal Revenue Service (IRS) now believes that the number of UBS clients who hold offshore accounts is higher than the 17,000 originally reported. The IRS believes that UBS helped these clients commit tax fraud by helping them hide their income from the IRS. According to the article UBS is in talks with the Department of Justice to avoid possible felony indictments by paying a penalty in the rage of 1.2 billion dollars.

UBS become front page news when a former UBS executive told the IRS that UBS routinely advised its customers that they weren’t required to disclose their Swiss bank accounts to the IRS. Of course that was a bad bit of advice which could expose people to tax evasion and related charges since U.S. citizens are required to make a disclosure of their offshore bank accounts in two places. First, on Schedule B of their Form 1040 in response to question 7a “At any time during 2008, did you have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account?” Second, holders of foreign bank accounts must report their existence on Form TDF 90-22.1.

In July 2008 a District Court judge in Miami granted an IRS summons to turn over the records with the names of US taxpayers who requested their accounts be kept hidden from the IRS. Clearly such records would be part of a chain of evidence that the IRS could use to bring tax evasion charges. UBS has yet to turn over the records, and according to the Journal the IRS is considering whether to ask the judge for an additional order forcing the turnover of the records.

I have mentioned before the possibility of avoiding tax evasion and tax fraud related charges by making a voluntary disclosure to the IRS, but it appears that the window of opportunity to do so may be narrowing soon.

If you would like to discuss your tax problems with a tax litigation attorney please call Brager Tax Law Group, A P.C.

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On Dec. 8, 2008 Lichtenstein entered into a tax treaty, which will allow the Internal Revenue Service ("IRS") access to foreign bank account information even though there is no evidence of tax fraud. The treaty, which is known as a Tax Information Exchange Agreement (TIEA), will provide the United States with access to banks and other information needed to enforce U.S. tax laws. The TIEA will apply in both civil and criminal tax cases. The TIEA provides that information will be provided without regard to whether or not the conduct being investigated would constitute tax fraud under Lichtenstein law. Nor is there any requirement that there be a tax fraud investigation under way in the United States.

The type of information available to the IRS is very broad. For example, the TIEA contemplates Lichtenstein to provide the following non-exclusive types of information:

1. Information held by banks and other financial institutions including nominees and trustees acting in an agency or fiduciary capacity;
2. Information regarding the ownership of companies, including information on all persons in the ownership chain
3. In the case of trusts, information on the trustees, settlers and beneficiaries;
4. In the case of foundations, information on the founders, members of the foundation council, and beneficiaries.

The TIEA permits the Internal Revenue Service not just to obtain documents, but also to arrange for Lichtenstein officials to take the depositions of witnesses. The TIEA contemplates that IRS officials may be present at these depositions.

The TIEA will apply to information related to 2009 and later years. However, it will allow for the furnishing of documents created prior to Jan. 1, 2009 provided that it is related to an investigation for years after 2008. Indeed the appendix to the TIEA gives the following example: “…if assistance is requested with respect to a taxpayer’s bank transactions occurring after December 31, 2008, and documents such as, but not limited to, a signature card for the account in question were executed prior to January 1, 2009 the parties would exchange the documents.”

Given the significant criminal tax problems, as well as civil tax problems that could arise from the IRS obtaining information regarding unreported income secreted in offshore bank accounts, it would be a good time for U.S. citizens with “secret” accounts to consult with a tax attorney to see how these tax problems should be dealt with. One way is through a voluntary disclosure. However, voluntary disclosures are not without risks, and all of the facts and circumstances need to be considered.

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Posted In: Offshore Bank Account Problems , Tax Litigation and Tax Controversy

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The U.S. Senate Committee on Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations released its report Tax Haven Banks and U.S. Tax Compliance detailing widespread facilitation of tax evasion by UBS and LGT. LGT Bank, a leading Liechtenstein financial institution that is owned by and financially benefits the Liechtenstein royal family.

According to the report LGT allowed U.S. citizens to maintain billions of dollars in assets in accounts not disclosed to U.S. tax authorities; advised U.S. clients on the use of complex offshore structures to hide their ownership of assets, and arranging client accounts and assets to avoid reporting requirements that would otherwise disclose the accounts and assets to U.S. authorities. According to the report millions if not billions of dollars of income may have gone unreported, resulting in massive tax fraud. One technique was to set up a Liechtenstein trust to disguise the true ownership of the funds. Under U.S. tax law, the IRS generally views Liechtenstein foundations as foreign trusts.

U.S. persons with an interest in a foreign trust, including a Liechtenstein foundation, are required to disclose the existence of the trust to the IRS by filing Forms 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) and 3520-A (Annual Information Return of Foreign Trust With a U.S. Owner). Form 3520 is due on or before the 90th day (or such later day as the Secretary may prescribe) after a reportable event. Internal Revenue Code § 6048. Form 3520-A must be prepared by the trustee and provided to trust beneficiaries to be filed with their returns by March 15 of the following year (assuming the trust has a calendar year-end). Trustees must supply copies of the Foreign Grantor Trust Owner Statement and the Foreign Grantor Trust Beneficiary Statement to the U.S. owners and U.S. beneficiaries by the same deadline. While the Internal Revenue Code requires the trust to file the form, it also makes the U.S. owner responsible for ensuring that the form is filed and the required information furnished to U.S. owners and U.S. beneficiaries. The reporting obligations under Forms 3520 and 3520-A must be met even if a foreign government can impose penalties for disclosing financial information. See Internal Revenue Code, § 6677(d)(imposing tax penalties for failure to file a form 3520 or 3520-A even if a foreign jurisdiction would impose a civil or criminal penalty for disclosure). For more on the tax penalties for not reporting ownership of offshore accounts see our prior post.

Owners of foreign bank accounts or trusts may wish to consider attempting to avoid tax fraud charges through the IRS' voluntary disclosure program.

If you have tax problems contact the IRS tax attorneys at Brager Tax Law Group, A P.C.

Posted by Dennis N. Brager | Permalink | Email This Post

Posted In: Offshore Bank Account Problems , Tax Fraud

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