FATCA Tax Attorney

FATCA Criminal Case Filed Against Foreigners | FATCA Lawyer & Attorney

On March 22, 2018, the US Department of Justice (“DOJ”) announced that it charged four foreign residents – Panayiotis Kyriacou (resides in London, UK), Arvinsingh Canaye (resides in Mauritius), Adrian Baron (resides in Budapest, Hungary), and Linda Bullock (resides in St. Vincent/Grenadines) – with conspiracy to defraud the United States by failing to comply with FATCA. Let’s explore this new FATCA criminal case in more detail.

Legal Basis for FATCA Criminal Case

The legal basis for this FATCA criminal case is the allegation that the defendants conspired to defraud the United States by obstructing the IRS administration of the Foreign Account Tax Compliance Act (“FATCA”).

FATCA was passed into law in 2010. One part of this highly complex law requires foreign financial institutions (“FFIs”) to identify their US customers, collect the information about foreign accounts held by these US customers as required by FATCA (“FATCA Information”) and send FATCA Information to the United States. The DOJ alleges that the defendants in this case intentionally conspired to obstruct the collection and reporting of FATCA Information to the IRS.

Facts of the FATCA Criminal Case As Alleged by the DOJ

The indictment alleges that the defendants agreed to defraud the United States by opening foreign bank and brokerage accounts without collecting FATCA information that should have been reported to the IRS. The indictment describes two specific schemes, both of which were uncovered by the DOJ through an undercover agent.

The first scheme is called the Beaufort Scheme, because Canaye and Kyriacou both worked at Beaufort Management as a general manager and an investment manager respectively. The indictment alleges that, between August 2016 and February 2018, these two defendants conspired to defraud the United States by failing to comply with FATCA. The DOJ states that it obtained the proof of the existence of this conspiracy through an undercover agent (the “Agent”).

The Agent first approached Kyriacou in 2016, who opened bank accounts for the agent without doing any FATCA compliance. In July 2017, Kyriacou introduced the Agent to Canaye and advised that Canaye could assist with the Agent’s stock manipulation scheme schemes. In January 2018, Canaye and Beaufort Management opened six global business corporations for the Agent. The Agent’s name did not appear on any of the account opening documents.

The second scheme is called the Loyal Scheme because it involved Baron, the Loyal Bank’s Chief Business Officer. During their meetings, the Agent explained to Baron that he was a US citizen and described his stock manipulation schemes, including the need to bypass FATCA. In July and August of 2017, the Undercover Agent met with Baron and Bullock, Loyal Bank’s Chief Executive Officer. During the meeting, the Undercover Agent described how his stock manipulation deals operated, including the necessity to bypass FATCA. In July and August 2017, Loyal Bank opened multiple bank accounts for the Agent. At no time did Loyal Bank request or collect FATCA Information from the Undercover Agent.

It should be remembered that the charges in the superseding indictment are merely allegations, and the defendants are presumed innocent unless and until proven guilty.

This FATCA Criminal Case Reflects IRS Commitment to FATCA Enforcement

While not the first FATCA criminal case, the present case is definitely at the beginning of the future series of FATCA cases against US taxpayers and foreigners. The IRS stressed that this FATCA criminal case reflects the commitment of the IRS and the DOJ to combat offshore tax evasion and enforce FATCA worldwide.

Sherayzen Law Office will continue to monitor IRS enforcement of FATCA, including this FATCA criminal case.

Specified Domestic Entity: Passive Test | FATCA Form 8938 Lawyer & Attorney

This article is published as part of a long series of articles on the Specified Domestic Entity (“SDE”) Definition. In a previous article, I stated that the term “formed or availed of” consists of two legal tests: the Closely-Held Test and the Passive Test. Since I already explained the general requirements of the Closely-Held Test in another article, I would like to focus today on the Passive Test.

The Passive Test: Background Information

Starting tax year 2016, business entities classified as SDEs may be required to attach Form 8938 to their US tax returns. What entity is considered to be SDE? The answer is found in Treas. Reg. §1.6038D-6(a): “a specified domestic entity is a domestic corporation, a domestic partnership, or a trust described in IRC Section 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.”

I already explained in a previous article that “formed or availed of” is a term of art and a requirement that an entity meets two legal tests: the Closely-Held Test and the Passive Test.

The Passive Test: General Requirements

The Passive Test consists of two threshold requirements: the Passive Income Threshold and the Passive Assets Threshold. If one of these Thresholds is satisfied, the Passive Test is met and a business entity would be considered as formed or availed of for the purposes of holding specified foreign financial assets. Let’s explore these two requirements in more detail.

The Passive Test: the Passive Income Threshold

The Passive Income Threshold is satisfied if “at least 50 percent of a corporation’s or a partnership’s gross income for the taxable year is passive income.” Treas. Reg. §1.6038D-6(b)(1)(ii). The definition of passive income includes:

“(A) Dividends,

(B) Interest;

(C) Income equivalent to interest, including substitute interest;

(D) Rents and royalties, other than rents and royalties derived in the active conduct of a trade or business conducted, at least in part, by employees of the corporation or partnership;

(E) Annuities;

(F) The excess of gains over losses from the sale or exchange of property that gives rise to passive income described in paragraphs (b)(3)(i)(A) through (b)(3)(i)(E) of this section;

(G) The excess of gains over losses from transactions (including futures, forwards, and similar transactions) in any commodity, but not including –

(1) Any commodity hedging transaction described in section 954(c)(5)(A), determined by treating the corporation or partnership as a controlled foreign corporation; or

(2) Active business gains or losses from the sale of commodities, but only if substantially all the corporation or partnership’s commodities are property described in paragraph (1), (2), or (8) of section 1221(a);

(H) The excess of foreign currency gains over foreign currency losses (as defined in section 988(b)) attributable to any section 988 transaction; and

(I) Net income from notional principal contracts as defined in § 1.446-3(c)(1).” Treas. Reg. §1.6038D-6(b)(3).

The Treasury Regulations also contain certain exceptions to the definition of passive income (for example, for dealers).

The Passive Test: the Passive Assets Threshold

The Passive Assets Threshold is satisfied if at least 50 percent of the assets held by a corporation or a partnership for the taxable year “are assets that produce or are held for the production of passive income.” Treas. Reg. §1.6038D-6(b)(1)(ii). Such assets are called “passive assets”. Id.

The percentage of passive assets held by a corporation or a partnership during a taxable year is determined based on “the weighted average percentage of passive assets (weighted by total assets and measured quarterly).” Id. This is very similar to the PFIC test.

The regulations allow for two different methods of valuation of the assets for the purpose of the Passive Asset Threshold. The first method is Fair Market Value of the assets. The second method is valuation of assets based on the “book value of the assets that is reflected on the corporation’s or partnership’s balance sheet.” Id. Surprisingly, both US and an international financial accounting standard are permitted for the purpose of the valuation of assets (usually, only US GAAP is allowed).

Contact Sherayzen Law Office for Professional Help with FATCA Form 8938 Compliance

If you are concerned about whether your entity is required to file Form 8938 or you have any other FATCA-related questions, please contact Sherayzen Law Office for professional help. Sherayzen Law Office is an international tax law firm that specializes in the US international tax compliance, including FATCA Form 8938 compliance. We have helped hundreds of US taxpayers with their FATCA requirements and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Specified Domestic Entity Form 8938 Filing Threshold | FATCA Lawyer

The Specified Domestic Entity Form 8938 filing threshold is likely to be very easily satisfied by the majority of Specified Domestic Entities. With the major tax return filing deadlines just two or three months away (depending on whether an entity is a corporation, a partnership or a trust), every Specified Domestic Entity must assess whether it is required to file FATCA Form 8938. Failure to do so may result in imposition of Form 8938 penalties by the IRS.

Specified Domestic Entity Form 8938 Filing Threshold

For tax years beginning after December 31, 2015, a Specified Domestic Entity must file Form 8938 if the total value of its Specified Foreign Financial Assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year. This is an incredibly low Specified Domestic Entity Form 8938 filing threshold that pretty much means that virtually all Specified Domestic Entities will have to file a Form 8938.

Transition Years Are Most Dangerous

Transition tax years 2016, 2017 and 2018 are likely to be the most dangerous for Specified Domestic Entities. Since the Specified Domestic Entity Form 8938 filing threshold is very low and the awareness of the Specified Domestic Entity Form 8938 filing obligation is limited to a small number of specialized tax professionals, there can be no doubt that many Specified Domestic Entities will fail to comply with their Form 8938 filing obligations and may face steep Form 8938 penalties.

Contact Sherayzen Law Office for Help with the Specified Domestic Entity Form 8938 Filing Obligations

If your business or a trust is classified as a Specified Domestic Entity and your entity failed to file FATCA Form 8938, you need to contact Sherayzen Law Office for professional help. Our international tax law firm specializes in helping business and individuals with their US international tax compliance requirements, including Form 8938, and with their offshore voluntary disclosures involving a Form 8938.

Contact Us today to Schedule Your Confidential Consultation!

Specified Domestic Entity: Domestic Entity | FATCA Lawyer & Attorney

This is the second article from the series of articles concerning the definition of a Specified Domestic Entity. Today, I will explore what business entities are considered to be “Domestic”.

Specified Domestic Entity Background Information

Specified Domestic Entity is a new category of FATCA Form 8938 filers. Under FATCA, Form 8938 has to be filed with a US taxpayer’s tax return in order to report his Specified Foreign Financial Assets (“SFFA”). Prior to tax year 2016, Form 8938 was applicable only to individual US taxpayers. Starting tax year 2016, however, Specified Domestic Entities are required to file From 8938 as long as the total value of their SFFA meets the filing threshold.

Definition of a Domestic Entity for the Purposes of FATCA Form 8938

For the purposes of FATCA Form 8938, whether a corporation or a partnership is considered “domestic” is determined under the general definition found in 26 U.S.C. §7701(a)(4): “the term ‘domestic’ when applied to a corporation or partnership means created or organized in the United States or under the law of the United States or of any State unless, in the case of a partnership, the Secretary provides otherwise by regulations.” Thus, while the definition of a domestic corporation is fairly straightforward, it is not always the case with respect to domestic partnerships.

It should also be remembered that an LLC is never taxed as an LLC under the US tax law. Rather, LLC can be taxed either as a partnership or a corporation; it can also be treated as a disregarded entity if there is only one owner of the LLC and the LLC never elected to be taxed as a corporation.

A trust is considered to be a “domestic trust” if it meets the 26 U.S.C. §7701(a)(30)(E). The tests under this section of the Internal Revenue Code (IRC) can be fairly complex and may require additional analysis (see this article for further analysis).

Contact Sherayzen Law Office for Professional Help With FATCA Form 8938

If you need help with the FATCA Form 8938 compliance (including the definition of a Specified Domestic Entity), contact Sherayzen Law Office for professional help. Our experienced international tax team, headed by international tax attorney Eugene Sherayzen, Esq., will thoroughly analyze your case, determine whether you need to file Form 8938 and 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 obligations with respect to these assets.

Contact Us Today to Schedule Your Confidential Consultation!

New Irish Software to Combat Offshore Tax Evasion | Tax Lawyer News

The Irish Revenue is expanding its tax enforcement capabilities through new Irish software. This new Irish software will provide the Irish Revenue with a unique type of a multilateral analysis of a taxpayer in order to combat offshore tax evasion. This is definitely a new development in international tax enforcement and it is the one likely to be followed by other nations, including the United States.

New Irish Software Allows a Brand-New Versatile Analysis of a Taxpayer’s Life

The unique feature of the new Irish software is its multilateral analysis of a taxpayer. First of all, the software will match the data provided by taxpayer (or by other national institutions) with the data collected from other jurisdictions under the automatic information exchange agreements. So far, this is similar to the IRS FATCA software.

However, the new Irish software goes further: it will analyze the taxpayer’s social media accounts, statements, pictures and so on to see if the taxpayer’s posts about his lifestyle match the information provided by the taxpayer to the Irish Revenue. It appears that there are other features of the software which are not even disclosed to the public that also go beyond the traditional analysis of tax and financial documents.

In other words, the new software will do the data analysis that will allow the Irish Revenue to build a complete profile of Irish taxpayers and their activities. This is a very bold and creative approach to tax enforcement, but, as discussed below, it is completely within the logic of the recent trends in international tax enforcement.

The New Irish Software Comes After the Closure of the Irish Voluntary Disclosure Program

The new Irish software is being introduced by the Irish Revenue just about six months after the closure of the Irish voluntary disclosure program. The Irish Revenue received 2,734 disclosures with a declared value of almost 84 million before the program’s deadline for offshore disclosures on May 4, 2017.

Since the voluntary disclosure program is closed, the noncompliant taxpayers who will be identified by the new Irish software are likely to face substantially higher penalties.

Lessons to be Drawn from the New Irish Software With Respect to Future US Tax Enforcement

This latest development in Irish tax enforcement is indicative of the trend of using comprehensive data analytics through smarter, more aggressive software with elements of Artificial Intelligence to identify noncompliant taxpayers. This is the trend that will undoubtedly influence US tax enforcement. In fact, the IRS already has an advanced tax software to analyze FATCA data (which, right now, is filled with errors and not very effective). Moreover, the IRS has also stated that it will develop its own AI software to identify US international tax noncompliance.

Furthermore, it seems that there is a worldwide trend toward harsher international tax enforcement in lieu of continuation of the existing voluntary disclosure programs. The fact that the Irish Revenue unveiled new software after the closure of the voluntary disclosure program is also not an accident, but a planned course of events.

We can already observe the same trend here in the United States. The IRS is stepping up FBAR audits while the DOJ (US Department of Justice) is dramatically increasing its FBAR-related litigation. Additionally, the IRS has recently announced its intentions to seriously modify and even close its own voluntary disclosure programs.

The combination of all of these trends means that noncompliant US taxpayers are at an extremely high risk of detection at the time when most of their voluntary disclosure options are being closed or significantly modified. This is why this is the critically-important time for these taxpayers to explore their voluntary disclosure options while they are still available. Failure to do so now may lead to extremely unfavorable tax consequences, including the imposition of substantially higher IRS penalties.

Contact Sherayzen Law Office for Professional Help with Your Offshore Voluntary Disclosure

If you have undisclosed foreign assets (including foreign bank and financial accounts) or foreign income, please contact Sherayzen Law Office as soon as possible. Our international tax law firm has successfully helped hundred of US taxpayers with their offshore voluntary disclosures. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!