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OVDP & Streamlined Disclosure May Terminate Soon | Foreign Accounts Lawyer

On November 15, 2017, the IRS sent yet another signal that certain offshore voluntary disclosure options, particularly the OVDP & Streamlined Disclosure options, will be significantly modified or even terminated as the IRS proceeds with the LB&I Compliance Campaigns. This means that US taxpayers with undisclosed foreign accounts need to hurry up if they wish to proceed with their offshore voluntary disclosure utilizing the OVDP or the Streamlined Compliance Procedures.

OVDP & Streamlined Disclosure Termination: What Did the IRS Say?

The latest signal on the termination of the OVDP & Streamlined Disclosure options came from Mr. John Cardon (director of the withholding and international compliance area within IRS LB&I) and Mr. Daniel Price, an attorney with the IRS Office of Chief Counsel, Small Business/Self-Employed Division in Austin, Texas.

Both IRS officials emphasized that the current Offshore Voluntary Disclosure Program and the Streamlined Filing Procedures are likely to terminate soon. Mr. Price emphasized the fact that these voluntary disclosure options were always intended as special offers that were bound to end at some point.

The possibility that the IRS wishes to terminate the Streamlined Disclosure options in addition to OVDP is somewhat sudden and premature. The IRS already stated in the past that it is no longer satisfied with the OVDP, but it never complained about the Streamlined Compliance Procedures (which have been highly successful with over 18,000 disclosures just in the last year). It is also not clear whether the IRS wishes to completely terminate all OVDP and Streamlined Disclosure options or whether the Streamlined Filing Procedures will survive in one form or another.

Why the IRS Wishes to End OVDP & Streamlined Disclosure Options

There is more than one reason behind the current IRS drive to end or significantly modify the existing voluntary disclosure options. Let’s focus on the two most important of them.

First, the existing voluntary disclosure options are rapidly losing value as a source of new information regarding offshore noncompliance with US taxes. FATCA has created an enormous and continuously expanding network of automatic information exchange between the IRS and foreign financial institutions. Moreover, other automatic information exchanges mechanisms have successfully filled most of the gaps left by FATCA.

In other words, now that offshore tax compliance and automatic international information exchanges have become a worldwide norm, the IRS does not need voluntary disclosures to obtain new information about offshore tax noncompliance.

Second, there has been a systemic change to a different model of tax administration. As the IRS officials emphasized on November 15, 2017, the IRS is shifting away from processing broad voluntary disclosure programs while it is embracing the model of focused enforcement. This is precisely why the IRS created the LB&I Compliance Campaigns – to concentrate its limited resources on tax enforcement where it is most needed rather than engage in broad efforts with respect to voluntary correction of past errors. Hence, in an environment where enforcement dominates over voluntary disclosures, the utility of the IRS voluntary disclosure options becomes more and more limited.

OVDP & Streamlined Disclosure Termination: When Will the IRS Announce the Termination of the Current OVDP & Streamlined Disclosure Programs?

It appears that the IRS will make the appropriate announcement for the termination of the voluntary disclosures prior to the end of January of 2018.

Will the Termination of Current OVDP & Streamlined Disclosure Programs Happen Immediately or Sometime After the Announcement?

It appears that, even after its announcement of the termination of the OVDP & Streamlined Disclosure options, the IRS will provide some time for the taxpayers to finalize their on-going disclosures. Mr. Cordone even stated that the voluntary disclosure programs’ termination date could be as far away as one year from the date of the IRS announcement of such a termination.

Will the End of OVDP & Streamlined Disclosure Programs Also Mark the End of IRS Voluntary Disclosures Per Se?

While the recent IRS moves are of great concern, they should not be taken as the end of the IRS voluntary disclosures per se with no options available to remedy one’s past tax noncompliance with respect to offshore accounts. Rather, I expect that the IRS voluntary disclosures will simply shift to different options. It is beyond the scope of this article to discuss these potential voluntary disclosure options, but it is reasonable to assume we will find ourselves in situation somewhat reminiscent of the period of time between the end of 2011 OVDI and the beginning of 2012 OVDP.

If, however, a taxpayer wishes to take advantage of the existing voluntary disclosure options, the taxpayer should contact Sherayzen Law Office as soon as possible to make sure that the voluntary disclosure can be completed before the IRS closes OVDP & Streamlined Disclosure Program.

Contact Sherayzen Law Office for Professional Help with Your Offshore Voluntary Disclosure, including the OVDP & Streamlined Disclosure Options

If you have undisclosed foreign accounts or any other foreign assets, you should contact Sherayzen Law Office for professional help as soon as possible. Our international tax firm is highly experienced in successful completion of offshore voluntary disclosures for clients with foreign assets in close to 70 countries. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Julius Baer Deferred Prosecution Agreement

On February 4, 2016, the US DOJ announced that it filed criminal charges against Bank Julius Baer & Co. Ltd. (“Julius Baer” or “the company”). At the same time, the DOJ announced a Julius Baer Deferred Prosecution Agreement. Let’s explore this event in more detail.

Julius Baer Deferred Prosecution Agreement Background

Unlike many other Swiss Banks, Julius Baer could not participate in the Swiss Bank Program due to its classification as a Category 1 bank. Hence, the Julius Baer Deferred Prosecution Agreement comes as an independent agreement with the DOJ after the DOJ filed criminal charges against Julius Baer.

According to the IRS and the court documents, from at least the 1990s through 2009, Julius Baer helped many of its U.S. taxpayer-clients evade their U.S. tax obligations, file false federal tax returns with the IRS and otherwise hide accounts held at Julius Baer from the IRS (hereinafter, undeclared accounts). Julius Baer did so by opening and maintaining undeclared accounts for U.S. taxpayers and by allowing third-party asset managers to open undeclared accounts for U.S. taxpayers at Julius Baer. Casadei and Frazzetto, bankers who worked as client advisers at Julius Baer, directly assisted various U.S. taxpayer-clients in maintaining undeclared accounts at Julius Baer in order to evade their obligations under U.S. law. At various times, Casadei, Frazzetto and others advised those U.S. taxpayer-clients that their accounts at Julius Baer would not be disclosed to the IRS because Julius Baer had a long tradition of bank secrecy and no longer had offices in the United States, making Julius Baer less vulnerable to pressure from U.S. law enforcement authorities than other Swiss banks with a presence in the United States.

Julius Baer was aware that many U.S. taxpayer-clients were maintaining undeclared accounts at Julius Baer in order to evade their U.S. tax obligations, in violation of U.S. law. In internal Julius Baer correspondence, undeclared accounts held by U.S. taxpayers were at times referred to as “black money,” “non W-9,” “tax neutral,” “unofficial,” or “sensitive” accounts.

At its high-water mark in 2007, Julius Baer had approximately $4.7 billion in assets under management relating to approximately 2,589 undeclared accounts held by U.S. taxpayer-clients. From 2001 through 2011, Julius Baer earned approximately $87 million in profit on approximately $219 million gross revenues from its undeclared U.S. taxpayer accounts, including accounts held through structures.

However, the IRS noted that the behavior of Julius Baer started to change. By at least 2008, Julius Baer began to implement institutional policy changes to cease providing assistance to U.S. taxpayers in violating their U.S. legal obligations. For example, by November 2008, the company began an “exit” plan for U.S. client accounts that lacked evidence of U.S. tax compliance. In that same month, Julius Baer imposed a prohibition on opening accounts for any U.S. clients without a Form W-9.

Additionally, in November 2009, before Julius Baer became aware of any U.S. investigation into its conduct, Julius Baer decided proactively to approach U.S. law enforcement authorities regarding its conduct relating to U.S. taxpayers. Prior to self-reporting to the Department of Justice, Julius Baer notified its regulator in Switzerland of its intention to contact U.S. law enforcement authorities. This Swiss regulator requested that Julius Baer not contact U.S. authorities in order not to prejudice the Swiss government in any bilateral negotiations with the United States on tax-related matters. Accordingly, Julius Baer did not, at that time, self-report to U.S. law enforcement authorities.

After ultimately engaging with U.S. authorities, Julius Baer has taken extensive actions to demonstrate acceptance and acknowledgment of responsibility for its conduct. Julius Baer conducted a swift and robust internal investigation, and furnished the U.S. government with a continuous flow of unvarnished facts gathered during the course of that internal investigation. As part of its cooperation, Julius Baer also, among other things, (1) successfully advocated in favor of a decision provided by the Swiss Federal Council in April 2012 to allow banks under investigation by the U.S. Department of Justice to legally produce employee and third-party information to the department, and subsequently produced such information immediately upon issuance of that decision; and (2) encouraged certain employees, including specifically Frazzetto and Casadei, to accept responsibility for their participation in the conduct at issue and cooperate with the ongoing investigation.

Julius Baer Deferred Prosecution Agreement Details

Under the Julius Baer Deferred Prosecution Agreement, the bank admitted to helping U.S. taxpayers hide assets and knowingly assisted many of its U.S. taxpayer-clients in evading their tax obligations under U.S. law. The admissions are contained in a detailed Statement of Facts attached to the agreement. The agreement requires Julius Baer to pay a total of $547 million by no later than February 9, 2016, including through a parallel civil forfeiture action also filed today in the Southern District of New York.

Julius Baer Deferred Prosecution Agreement Impact on U.S. Taxpayers

The Julius Baer Deferred Prosecution Agreement signifies yet another IRS victory over the now-defeated Swiss bank secrecy system. The IRS is simply “mopping-up” the left-over issues in Switzerland as it shifts its focus to other major offshore tax havens. Yet, the Julius Baer Deferred Prosecution Agreement is still a major event that has repercussions for U.S. taxpayers with undeclared foreign accounts.

First, the Julius Baer Deferred Prosecution Agreement is likely to continue to impact former Julius Baer U.S. taxpayers who transferred their funds out of this Swiss bank to another country or another bank in the hopes of avoiding IRS detection of their prior non-compliance. Under the agreement, Julius Baer will continue to cooperate with the IRS in the identification of such noncompliant U.S. taxpayers.

Second, Julius Baer is an important Swiss bank and the fact that the Julius Baer Deferred Prosecution Agreement was reached encourages other noncompliant banks (not only in Switzerland, but other countries) to follow its example. Therefore, U.S. taxpayers who believe they are safe outside of Switzerland are now in the ever increasing danger of IRS detection.

Contact Sherayzen Law Office for Professional Help with Your Undeclared Foreign Accounts

The Julius Baer Deferred Prosecution Agreement is another reminder on how dangerous is the current tax environment for noncompliant U.S. taxpayers. Therefore, if you have not disclosed your foreign accounts, foreign assets or foreign income, please contact Sherayzen Law Office as soon as possible. Our team of tax professionals is highly experienced in handling these matters and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!