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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FATCA Letters

Following the implementation of Foreign Account Tax Compliance Act (“FATCA”) on July 1, 2014, foreign banks around the world started sending out FATCA Letters to their US (or suspected US) customers who had accounts on record prior to as well as on June 30, 2014. In a previous article, I discussed the reason for FATCA Letters and their impact on US taxpayers with undisclosed foreign accounts. In this article, I would like to focus the discussion on what type of information is typically contained in FATCA Letters.

FATCA Letters: Background Information

FATCA is codified in the Internal Revenue Code Sections 1471 through 1474 and contains an unprecedented amount of new international tax requirements for US persons, foreign financial institutions (FFIs), and US withholding agents (USWAs).

For the purpose of this article, I will concentrate solely on the FATCA requirement to analyze pre-existing accounts and report them to the IRS. Currently, according to the new deadline extensions found in IRS Notice 2014-43, “pre-existing” accounts are those accounts that were maintained by FFIs prior to or on June 30, 2014.

These pre-existing accounts are the main target for FATCA letters sent out to their clients by foreign banks. Of course, FATCA letters may also apply to the accounts opened after July 1, 2014, but, in many cases, these accounts were already opened according to FATCA account opening procedures (hence, all of the questions that are usually contained in FATCA letters should have been asked at the point when the account was opened).

The purpose for FATCA letters is for the FFI to obtain the necessary information to comply with its own FATCA reporting requirements. Hence ,the content of the FATCA letters is going to be fairly uniform irrespective of the FFI that sends it, even though the format of FATCA letters may differ greatly among the countries and even FFIs within a country.

FATCA Letters: Typical Content

As I mentioned above, virtually every FATCA Letters is geared toward obtaining certain types of information which is necessary for the FFI’s own reporting to the IRS (either directly or through a national tax authority). The overall requested information can be divided into three categories:

1. Personal Information

FATCA letters first typically try to confirm the exact name, nationality and address of the account holder. Most FATCA letters will also ask for the date of birth, country of birth and the account holder’s telephone number.

2. Determination of US Status and Form W-9

This is the most critical part of FATCA Letters, because it aims at verifying whether the account holder is a US person in any common way. The exact format of this part differs greatly from bank to bank, but a typical FATCA letter would either request the account holder to fill-out Form W-9 directly or first ask a few questions (such as “do you have US nationality”, “are you a US Lawful Permanent Resident”, or “Have you spent a substantial period of time in the USA”) and then ask to fill-out Form W-9 if any of these questions are answered positively.

Also, depending on a country, an FFI would also typically ask the taxpayer to sign some sort of a consent to the disclosure of FATCA data to the IRS. In Switzerland, it is always present.

3. Further Determination of Status Questions; Possible Forms W-8BEN and W-9

Once the first basic part of the US status determination is finished, FATCA letters go on to ask a second set of questions aimed at uncovering potential inconsistencies in the status claim and verify if the account holder may be a US person in some other way.

In this part, FATCA letters typically ask whether the account holder was born in the United States, is a US person for any other reason, has effectively connected US income, has US mailing address, and has a US telephone number.

If the answer to any of these questions is “yes”, FATCA letters would generally ask the taxpayer to provide further information. For example, where the account holder is a US person for any other reason or cannot prove that he is not a US person if he was born in the United States, then FATCA letters would request Form W-9 and a consent to the disclosure of FATCA data to the IRS.

On the other hand, if the account holder persists in being considered as a non-US person and can prove it, then FATCA letters would ask for Form W-8BEN and a non-US passport (or other similar documentation). In case the account holder was born in the United States but claims to be a non-US person, FATCA letters would demand a copy of the certificate of loss of US nationality.

W-8BEN may also be required if the account holder is not a US person but has US-source income.

Impact of FATCA Letters on US Account Holders

The basic purpose behind FATCA is to allow the IRS to easily identify a US person’s non-compliance with US tax laws concerning reporting of foreign-source income and foreign assets. FATCA letters allow the FFIs to quickly identify with a fair degree of certainty whether their account holders are US persons and ultimately relate this information to the IRS on Form 8966.

This means that US taxpayers with undisclosed foreign accounts are currently facing an imminent risk of a third-party disclosure of their tax non-compliance to the IRS. If these taxpayers do not do anything, the risk of the IRS finding them has become unacceptably high.

Moreover, if the IRS commences an investigation of these US taxpayers before they engage in any type of voluntary disclosure, these taxpayers are not likely to be able to enter the IRS Offshore Voluntary Disclosure Program leaving them potentially unprotected to the draconian FBAR criminal and civil penalties as well as potentially large income tax penalties.

Thus, the receipt of FATCA letters is a critical legal event that starts the clock for these taxpayers in terms of their ability to voluntarily disclose their accounts. This means that these taxpayers need to act quickly and immediately consult an international tax attorney who specializes in this area to explore their voluntary disclosure options.

Contact Sherayzen Law Office if You Received a FATCA Letter

If you have undisclosed foreign accounts and you received a FATCA letter from your foreign bank, you should contact Sherayzen Law Office immediately. Mr. Eugene Sherayzen is and experienced international tax attorney who has successfully helped hundreds of US taxpayers like you to bring their affairs back into US tax compliance. Sherayzen Law Office, PLLC can help you!

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FATCA Tax Lawyers: Six More Agreements to Implement FATCA

On December 19, 2013, the U.S. Department of the Treasury announced that the United States has signed bilateral agreements with six additional jurisdictions to implement the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA). The six jurisdictions are: Malta, the Netherlands, The Islands of Bermuda, and three UK Crown Dependencies – Jersey, Guernsey, and the Isle of Man.

Enacted by Congress in 2010, these provisions target non-compliance by U.S. taxpayers using foreign accounts. With these most recent agreements, the United States has signed 18 FATCA intergovernmental agreements (IGAs), has 11 agreements in substance, and is engaged in related discussions with many other jurisdictions.

In general, FATCA seeks to obtain information on accounts held by U.S. taxpayers in other countries. It requires U.S. financial institutions to withhold a portion of certain payments made to foreign financial institutions (FFIs) who do not agree to identify and report information on U.S. account holders. Governments have the option of permitting their FFIs to enter into agreements directly with the IRS to comply with FATCA under U.S. Treasury Regulations or to implement FATCA by entering into one of two alternative Model IGAs with the United States.

FATCA Tax Lawyers: Model 1 IGAs Signed by Fix Jurisdictions

Malta, the Netherlands, Jersey, Guernsey, and the Isle of Man signed Model 1 IGAs. Under these agreements, FFIs will report the information required under FATCA about U.S. accounts to their home governments, which in turn will report the information to the IRS. These agreements are reciprocal, meaning that the United States will also provide similar tax information to these governments regarding individuals and entities from their jurisdictions with accounts in the United States.

In addition to these FATCA agreements, protocols to the existing tax information exchange agreements with Jersey, Guernsey, and the Isle of Man were also signed.

FATCA Tax Lawyers: Bermuda Signs Model 2 IGA

Unlike the other jurisdictions, Bermuda signed Model 2 IGA meaning that Bermuda will direct and legally enable FFIs in Bermuda to register with the IRS and report the information required by FATCA about consenting U.S. accounts directly to the IRS. This requirement is supplemented by government-to-government exchange of information regarding certain pre-existing non-consenting accounts on request.

FATCA Tax Lawyers: Tax Shelters Are No Longer Information Shelters

The fact that Bermuda, Jersey, Guernsey, and the Isle of Man (all of which are considered to be offshore havens) signed FATCA is a fact that is indicative of a general trend that I have emphasized since the appearance of FATCA – there are no reasonable safe havens for non-compliant U.S. taxpayers outside of few important jurisdictions, such as China. Even Russia has declared its intention to sign FATCA. More importantly, the jurisdictions that are generally regarded as tax shelter or low-tax jurisdictions are likely to allow the IRS to impose its will on their banks.

FATCA continues to gather momentum as we work with partners worldwide to combat offshore tax evasion,” said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack. “This large number of signings in one week alone sends a strong signal to tax evaders everywhere: international support for FATCA is growing.”

FATCA Tax Lawyers: Implications of Recent Agreements for Non-Compliant US Taxpayers

These developments continue to support the argument that non-compliant U.S. taxpayers worldwide need to urgently consider their options with respect to the voluntary disclosure of their foreign financial accounts and other foreign assets. Each new jurisdiction that signs FATCA is going to turn over the information about the non-compliant accounts to the IRS in one way or another. In such circumstances, procrastination with a voluntary disclosure may result in a dramatic reduction of available disclosure options and increase the chances of a criminal prosecution by the IRS.

Contact Sherayzen Law Office for Help with Your Voluntary Disclosure of Offshore Assets

If you have undisclosed foreign financial accounts or any other assets subject to U.S. reporting, please contact Sherayzen Law Office NOW. Our experienced international tax law firm will thoroughly analyze your case, review the available options and implement a customized plan of your voluntary disclosure (including the preparation of any required legal documents and tax forms).