FATCA Lawyers

South Korean Citizen FBAR Guilty Plea| FATCA Lawyer

On October 27, 2017, the IRS and the DOJ announced that Mr. Hyung Kwon Kim, a South Korean citizen and a Legal Permanent Resident of the United States, pleaded guilty to failure to file correct FBARs.

Alleged Facts of the Case Which Led the South Korean Citizen to the FBAR Guilty Plea

Mr. Kim is a South Korean citizen who became a US permanent resident in 1998. At that time, he traveled to Switzerland to identify financial institutions at which he could open accounts for the purpose of receiving transfers of funds from another person in Hong Kong. Over the next few years, Mr. Kim opened accounts at several banks, including Credit Suisse, UBS, Bank Leu, Clariden Leu, and Bank Hofmann. By 2004, the aggregate value of Mr. Kim’s accounts exceeded $28,000,000.

Mr. Kim engaged in activities to conceal the funds from the IRS. In order to accomplish this, he also enlisted the help of several bankers, including Dr. Edgar H. Paltzer (who was convicted in 2013 for conspiring to defraud the United States). Dr. Paltzer and other bankers assisted Mr. Kim in opening of sham entities organized in Liechtenstein, Panama and the British Virgin Islands as well as bank accounts in the name of these entities.

Mr. Kim also utilized other means to conceal funds from the US, including directing his bankers to issue checks in the millions of dollars payable to third parties in the United States. This is exactly how the South Korean citizen purchased his personal residence in Greenwich, Connecticut.

In 2005, Mr. Kim created a nominee entity to hold title for the purchase of another home on Stage Harbor in Chatham, Massachusetts, for nearly $5 million. Here, Dr. Paltzer and Mr. Kim engaged in a purchase in such a manner as to create the appearance that Mr. Kim was renting a property from a fictitious owner.

Furthermore, between 2000 and 2008, Mr. Kim took multiple trips to Zurich and withdrew more than $600,000 in cash during these visits. He also brought his offshore assets back to the United States by purchasing millions of dollars’ worth of jewelry and loose gems. In 2008, for example, Mr. Kim purchased an 8.6 carat ruby ring from a jeweler in Greenwich, Connecticut, which he financed by causing Bank Leu to issue three checks totaling $2.2 million to the jeweler.

After the UBS case i n2008, Mr. Kim’s banker at Clariden Leu informed Mr. Kim that due to ongoing investigations in the United States he had to either disclose the accounts to the US government, spend the funds or move the funds to another institution. Mr. Kim chose to move the funds into nominee accounts at another bank.

In 2011, the South Korean citizen engaged in the ultimate strategy of concealment by liquidating the accounts by, among other things, withdrawing tens of thousands of dollars in cash and purchasing three loose diamonds for about $1.7 million from a Greenwich jeweler. Finally, as part of his guilty plea, Mr. Kim also admitted that he filed false income tax returns for 1999 through 2010, on which he failed to report income from the assets held in the foreign financial accounts that he owned and controlled in Switzerland.

FBAR Criminal Penalties and Other Penalties that the South Korean Citizen Faces

As part of his plea agreement, Mr. Kim will pay a civil penalty of over $14,000,000 dollars to the United States Treasury for failing to file, and filing false FBARs. Separately, Mr. Kim faces the sentencing scheduled for January 26, 2018 before the US District Court Judge T.S. Ellis III. The South Korean Citizen faces a statutory maximum sentence of five years in prison. He also faces a period of supervised release, restitution, and monetary penalties, in addition to the FBAR penalty.

Czech Bank Accounts: Lawyer Finds Compliance Problems With FBAR and FATCA

For years, Czech Republic has held a position within the top fifteen countries among our firm’s voluntary disclosure clients. At the end of May and early June of 2017, our firm’s owner, international tax attorney Eugene Sherayzen, made a trip to the Czech Republic to find out why there are so many clients with unreported Czech Bank accounts.

Ceska Narodni Banka

Ceska Narodni Banka

General Lack of Awareness of FBAR and FATCA With Respect to Czech Bank Accounts

While Mr. Sherayzen found Prague an astonishingly beautiful city, his investigation of FBAR and FATCA awareness confirmed what he already supposed for years – there are important gaps in awareness of these US tax compliance requirements. The results of his investigation also showed that while there were some signs of improvement in FATCA awareness, FBAR was still generally an unknown form.

While Mr. Sherayzen’s investigation was not done using any scientific method and his targeted sample cannot be considered as a properly representative survey, its results are nonetheless alarming.

They are particularly important for Czech citizens who are also US citizens or US permanent residents residing in the United States, especially if they opened their Czech bank accounts with Czech passports prior to moving to the United States. Mr. Sherayzen’s investigation identified this group of individuals as particularly vulnerable to failing to comply with US tax requirements, including FBAR.

Czech Bankers Often Do Not Inform Their Clients of FBAR and FATCA Obligations With Respect to Czech Bank Accounts

Additionally, Mr. Sherayzen found a general lack of awareness of the obligation of foreign bankers to inform their clients about FATCA and, especially, FBARs. Of the five banks chosen, Mr. Sherayzen was unsatisfied with level of FATCA preparedness of the Czech bankers. These results further supported Mr. Sherayzen’s original supposition that the Czech bankers’ lack of proper education about US tax requirements exacerbated and, in many instances, were directly responsible for his clients’ unawareness of their FBAR and FATCA obligations.

These results are too recent at this point and need further analysis and confirmation in the future. Yet, it is clear that all US persons with Czech bank accounts need to urgently re-evaluate their current US tax compliance, especially if it is based on advice from Czech bankers.

Contact Sherayzen Law Office for Help With US Tax Compliance Concerning Czech Bank Accounts

If you have undisclosed Czech bank accounts or any other foreign assets, contact Sherayzen Law Office as soon as possible. Failure to do it before the IRS initiates an investigation may result in imposition of draconian FBAR penalties.

We have helped hundreds of US taxpayers around the world to bring their tax affairs into fully compliance with US laws. We can help You!

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Specified Domestic Entity Definition | FATCA Form 8938 Tax Lawyers Update

The recent introduction of the new concept of Specified Domestic Entity by the IRS represents a major expansion of the application of FATCA to US businesses and US trusts. For tax years beginning after December 31, 2015, a domestic corporation, partnership or trust classified as a Specified Domestic Entity must file FATCA Form 8938 with respect to its Specified Foreign Financial Assets (SFFA) as long as the total value of those assets meets the filing threshold. With this article, I begin a series of articles with respect to the definition of the Specified Domestic Entity and the affect of this new FATCA concept on US businesses and trusts. Today, I will introduce the general definition of a Specified Domestic Entity.

Specified Domestic Entity Definition: FATCA Background

Before we approach the Specified Domestic Entity Definition, we first need to make sure that we understand what FATCA is. The Foreign Account Tax Compliance Act or FATCA was signed into law in 2010 and codified in Sections 1471 through 1474 of the Internal Revenue Code. The law was enacted in order to reduce offshore tax evasion by US persons with undisclosed foreign accounts.

There are three main parts of FATCA (one can identify even more, but this type of analysis is most useful for the purposes of introducing the Specified Domestic Entity Definition). The first part is the obligation of foreign financial institutions (FFIs) to report to the IRS all foreign financial accounts held, directly or indirectly, by US persons. The second part of FATCA is a 30% withholding tax imposed on the gross amount of each transaction if the transaction involves a non-compliant FFI (these are the “teeth” of FATCA that force FFIs around the world to accept the first part of FATCA).

Finally, the third part of FATCA is the part most relevant to the Specified Domestic Entity Definition – the imposition of a new reporting requirement on US taxpayers with respect to Specified Foreign Financial Assets. This new requirement is called Form 8938.

Specified Domestic Entity Definition: Form 8938 Applied to Specified Individuals Only Prior to 2016

Prior to January 1, 2016, only certain categories of individuals were required to file Form 8938. These individuals were grouped under the term of a “specified individual”. In general, the term “specified individual” included US citizens, all resident aliens and certain categories of nonresident aliens. No business entities or trusts were required to file Form 8938 prior to 2016.

Specified Domestic Entity Definition: New Filing Category Starting 2016

This situation changed dramatically on January 1, 2016 with the introduction of a new category of Form 8938 filers. Starting tax years that began after December 31, 2015, business entities and trusts that are classified as Specified Domestic Entities must file Form 8938 as long as they meet the Form 8938 filing threshold.

Specified Domestic Entity Definition: General Definition

Now that we understand the context in which the Specified Domestic Entity Definition appeared, let’s state this definition.

Treas. Reg. §1.6038D-6(a) defines a Specified Domestic Entity as “a domestic corporation, a domestic partnership, or a trust described in 26 U.S.C. §7701(a)(30)(E), if such corporation, partnership, or trust is formed or availed of for purposes of holding, directly or indirectly, specified foreign financial assets.” As it is often the case with US international tax law, this general definition is pregnant with terms of art that require specific understanding and further analysis. In particular, we will need to explore the terms “domestic”, “formed or availed of for purposes of holding”, “holding directly or indirectly”, and “specified foreign financial assets.”

In the future articles concerning the analysis of the Specified Domestic Entity Definition, I will explore all of these terms. Without a doubt, the focus of our analysis will be on “formed or availed of for purposes of holding” clause, because this is the heart of the Specified Domestic Entity Definition.

Contact Sherayzen Law Office for Professional Help With the Specified Domestic Entity Definition, FATCA Form 8938 Filing and Other International Tax Compliance Issues

If you need to determine whether your business entity or your trust falls under the definition of a Specified Domestic Entity, contact Sherayzen Law Office for help. Our professional team, headed by international tax attorney Eugene Sherayzen, Esq., will thoroughly analyze your case, determine whether you need to file Form 8938 and/or any other US international information returns, and prepare these forms for you. We can also help you with the voluntary disclosure of any of your offshore assets if you did not timely comply with your US tax obligation with respect to these assets.

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Former Credit Suisse Banker Pleads Guilty | FATCA Lawyer Duluth

On July 19, 2017, Ms. Susanne D. Rüegg Meier, a citizen of Switzerland, pleaded guilty to conspiring to defraud the United States in connection with her work as the head of a team of bankers for Credit Suisse AG. The announcement of this plea by a former Credit Suisse Banker came from the U.S. Department of Justice’s Tax Division.

Facts that Led to Guilty Plea by the Former Credit Suisse Banker

According to the statement of facts and the plea agreement, Ms. Rüegg Meier admitted that, between 2002 and 2011, she worked as the team head of the Zurich Team of Credit Suisse’s North American desk in Switzerland. Ms. Rüegg Meier was responsible for supervising the servicing of accounts involving over 1,000 to 1,500 client relationships, out of which she personally handled about 140 to 150 clients (the great majority of these clients were U.S. persons). These “personally handled” clients had assets of about $400 million.

Ms. Rüegg Meier assisted many U.S. clients in utilizing their Credit Suisse accounts to evade their U.S. income taxes and to facilitate concealment of their undeclared financial accounts from the U.S. Department of the Treasury and the IRS. In particular, she engaged in the following activities to help her clients conceal their accounts: retaining in Switzerland all mail related to the account; structuring withdrawals in the forms of multiple checks each payable in amounts less than $10,000 that were sent by courier to clients in the United States and arranging for U.S. customers to withdraw cash from their Credit Suisse accounts at Credit Suisse locations outside Switzerland, such as the Bahamas. Moreover, Ms. Rüegg Meier admitted that approximately 20 to 30 of her U.S. clients concealed their ownership and control of foreign financial accounts by holding those accounts in the names of nominee tax haven entities or other structures that were frequently created in the form of foreign partnerships, trusts, corporations or foundations.

Additionally, between 2002 and 2008, the former Credit Suisse banker traveled approximately twice per year to the United States to meet with her clients. Among other places, Ms. Rüegg Meier met clients in the Credit Suisse New York representative office. To prepare for the trips, the former Credit Suisse banker would obtain “travel” account statements that contained no Credit Suisse logos or customer information, as well as business cards that bore no Credit Suisse logos and had an alternative street address for her office, in order to assist her in concealing the nature and purpose of her business.

After the UBS case, Credit Suisse began closing U.S. customers’ accounts in 2008. During that time, Ms. Rüegg Meier assisted the clients in keeping their assets concealed. In one instance, when one U.S. customer was informed that the bank planned to close his account, the former Credit Suisse banker assisted the customer in closing the account by withdrawing approximately $1 million in cash. Furthermore, she advised the client to find another bank simply by walking along the street in Zurich and locating a bank that would be willing to open an account for the client. The customer placed the cash into a paper bag and exited the bank.

Admitted Tax Loss from the Activities of the Former Credit Suisse Banker and Potential Sentence

The former Credit Suisse Banker admitted that the tax loss associated with her criminal conduct was between $3.5 and $9.5 million. The sentencing of Ms. Rüegg Meier is scheduled for September 8, 2017. She faces a statutory maximum sentence of five years in prison, a period of supervised release, restitution and monetary penalties.

IRS Wins Another Case Against Secret Belize Bank Accounts | FATCA Lawyers

On March 23, 2017, the IRS scored another major victory against using Belize bank accounts to hide income. On that day, Mr. Casey Padula pleaded guilty to conspiracy to commit tax and bank fraud, including using Belize bank accounts to conceal almost $2.5 million.

Facts Concerning Using Belize Bank Accounts to Commit Tax Fraud

According to documents filed with the court, Mr. Padula was the sole shareholder of Demandblox Inc. (Demandblox), a marketing and information technology business. Mr. Padula conspired with others to move funds from Demandblox to his Belize bank accounts, disguising the transfer of funds as business expenses in Demandblox’s corporate records. At the same time, Mr. Padula created two offshore companies in Belize: Intellectual Property Partners Inc. (IPPI) and Latin American Labor Outsourcing Inc. (LALO). He opened and controlled bank accounts in the names of these entities at Heritage International Bank & Trust Limited (Heritage Bank), a financial institution located in Belize.

From 2012 through 2013, Demandblox “paid” to the bank accounts at Heritage Bank approximately $2,490,688. The transfers were recorded as intellectual property rights or royalty fees on Demandblox’s corporate books and deducted as business expenses on the company’s 2012 and 2013 corporate tax returns, causing a tax loss of more than $728,000. In reality, Mr. Padula used the funds to pay for personal expenses and purchase significant personal assets.

Furthermore, Mr. Padula also conspired with investment advisors Mr. Joshua VanDyk and Mr. Eric St-Cyr at Clover Asset Management (CAM), a Cayman Islands investment firm, to open and fund an investment account that he would control, but that would not be in his name. Heritage Bank had an account at CAM in its name and its clients could get a subaccount through Heritage Bank at CAM, which would not be in the client’s name but rather would be a numbered account. Mr. Padula transferred $1,000,080 from the IPPI bank account at Heritage Bank in Belize to CAM to fund his numbered account.

Facts Concerning Bank Fraud

In addition to committing tax fraud, Mr. Padula also conspired with others to commit bank fraud.

Mr. Padula had a mortgage on his Port Charlotte, Florida home of approximately $1.5 million with Bank of America (BoA). In 2012, he sent a letter to the bank stating that he could no longer repay his loan. At the same time, Mr. Padula provided Mr. Robert Robinson, III, who acted as a nominee buyer, with more than $625,000 from his IPPI bank account in Belize to fund a short sale of Mr. Padula’s home. Mr. Padula and Mr. Robinson signed a contract, which falsely represented that the property was sold through an “arms-length transaction,” and agreed that Padula would not be permitted to remain in the property after the sale.

In fact, Mr. Padula never moved from his home. Moreover, less than two months after the closing, Mr. Robinson conveyed it back to Mr. Padula by transferring ownership to one of Mr. Padula’s Belizean entities for $1. Mr. Robinson also pleaded guilty on March 23, 2017, to signing a false Form HUD-1 in connection with his role in the scheme.

Potential Penalties Concerning Using Belize Bank Accounts to Commit Tax Fraud

Mr. Padula faces a statutory maximum sentence of five years in prison, a term of supervised release and monetary penalties. As part of his plea agreement, Mr. Padula agreed to pay restitution to the IRS and to BoA in the amount of $728,609. Mr. Robinson faces a statutory maximum sentence of one year in prison, a term of supervised release, restitution and monetary penalties.

Lessons of the Padula Case

The Padula Case is a classic illustration of facts that often lead to a criminal prosecution by the IRS. First, he was shifting US-source income to Belize bank accounts by creating an artificial loss between the entities that he controlled.

Second, Mr. Padula employed a sophisticated offshore corporate structure to actively attempt to conceal his ownership of his Belize bank accounts. While the guilty plea does not specifically state how the IRS first found out about Mr. Padula’s structure, it appears to me that it occurred in connection with the IRS criminal cases against Mr. VanDyk and Mr. St-Cyr.

Finally, Mr. Padula utilized Belize, a tax haven, to commit tax fraud. This is always a factor for the IRS with respect to deciding whether to commence a criminal investigation.

Additionally, the Padula Case is another confirmation there are no safe havens anymore. Especially since the implementation of FATCA, the IRS has now the capacity to trace the transfer of funds, identify the tax violations and present sufficient evidence to prosecute a criminal case.

Contact Sherayzen Law Office for Professional Help With the Voluntary Disclosure of Your Belize Bank Accounts

If you have undisclosed Belize bank accounts or undisclosed offshore assets in any other foreign country, you should contact Sherayzen Law Office to explore your voluntary disclosure options as soon as possible. If the IRS commences an investigation against you, this very fact may result in the closure of all voluntary disclosure paths currently available to you.

Sherayzen Law Office has accumulated tremendous experience in helping its clients with their Offshore Voluntary Disclosures, including Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures and Offshore Voluntary Disclosure Program (OVDP). We can help you!

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