Foreign Account Tax Compliance Act

Credit Suisse Pleaded Guilty; Disclosure of US-Held Bank Accounts

On May 19, 2014, Credit Suisse AG pleaded guilty to conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and other documents with the IRS. Credit Suisse agreed to pay huge fines and disclose certain information to the IRS and the US DOJ. Let’s look closer at certain parts of this deal and what this means to U.S. taxpayers who still hold undisclosed bank accounts at Credit Suisse or who held such accounts in any years since 2008.

Illegal Activities of Credit Suisse Acknowledged as Part of the Plea

The DOJ stated that, as part of the plea agreement, Credit Suisse acknowledged that, for decades prior to and through 2009, it operated an illegal cross-border banking business that knowingly and willfully aided and assisted thousands of U.S. clients in opening and maintaining undeclared accounts and concealing their offshore assets and income from the IRS.

According to the statement of facts filed with the plea agreement, Credit Suisse employed a variety of means to assist U.S. clients in concealing their undeclared accounts, including by:

assisting clients in using sham entities to hide undeclared accounts;

soliciting IRS forms that falsely stated, under penalties of perjury, that the sham entities were the beneficial owners of the assets in the accounts;

failing to maintain in the United States records related to the accounts;

destroying account records sent to the United States for client review;

using Credit Suisse managers and employees as unregistered investment advisors on undeclared accounts

facilitating withdrawals of funds from the undeclared accounts by either providing hand-delivered cash in the United States or using Credit Suisse’s correspondent bank accounts in the United States;

structuring transfers of funds to evade currency transaction reporting requirements; and

providing offshore credit and debit cards to repatriate funds in the undeclared accounts.

Fines that Credit Suisse Will Pay – A Huge Victory for the US Department of Justice

The giant bank agreed to pay a total of $2.6 billion – $1.8 billion to the Department of Justice for the U.S. Treasury, $100 million to the Federal Reserve, and $715 million to the New York State Department of Financial Services. Earlier this year, Credit Suisse already paid approximately $196 million in disgorgement, interest and penalties to the Securities and Exchange Commission (SEC) for violating the federal securities laws by providing cross-border brokerage and investment advisory services to U.S. clients without first registering with the SEC.

Credit Suisse has also agreed to implement programs to ensure its compliance with U.S. laws, including its reporting obligations under the Foreign Account Tax Compliance Act and relevant tax treaties, in all its current and future dealings with U.S. customers.

“This case shows that no financial institution, no matter its size or global reach, is above the law,” said Attorney General Holder. “Credit Suisse conspired to help U.S. citizens hide assets in offshore accounts in order to evade paying taxes. When a bank engages in misconduct this brazen, it should expect that the Justice Department will pursue criminal prosecution to the fullest extent possible, as has happened here.”

“This prosecution and plea should serve notice that secret accounts and assisting the evasion of income taxes have a high cost,” said U.S. Attorney Boente. “Concealing financial accounts from the U.S. government is not a legitimate part of wealth management or private banking services.”

“Pursuing international tax evasion is a priority area for IRS Criminal Investigation, and we will continue to follow the money here in the United States and around the world” said IRS Commissioner Koskinen. “I want to commend the special agents in IRS-Criminal Investigation for all of their hard work in this area and the close cooperation with the Department of Justice. Today’s guilty plea is another important milestone in ongoing law enforcement efforts to investigate the use of offshore accounts to evade taxes. People should no longer feel comfortable hiding their assets and income from the IRS.”

What Credit Suisse Will Further Disclose as Part of the Plea

This is the part which is most relevant to the U.S. taxpayers who had (or still have) undisclosed bank accounts at Credit Suisse at any point after January 1, 2008.

As part of the plea agreement, Credit Suisse agreed to make a complete disclosure of its cross-border activities, cooperate in treaty requests for account information, provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed, and to close accounts of account holders who fail to come into compliance with U.S. reporting obligations.

What Credit Suisse Guilty Plea Means to US Taxpayers with Undisclosed Credit Suisse Accounts

The guilty plea of Credit Suisse is likely to have a profound impact on U.S. taxpayers with undisclosed accounts. While the UBS case was a landmark victory for the IRS that changed the nature of the international tax enforcement, it was actually much more limited in “exposure” scope with respect to its own US accountholders than the Credit Suisse guilty plea (this is a true testament to how much more powerful the DOJ has become in Switzerland since 2008).

In essence, at this point, any US taxpayers with undisclosed Credit Suisse accounts should now assume that their non-compliant accounts now be closed (unless they do some type of voluntary disclosure) and/or they are likely to be disclosed by Credit Suisse to the IRS if the IRS makes a treaty request. Even worse, for any US taxpayers who had accounts at some point in 2008 and closed them prior to the guilty plea by Credit Suisse, there is no guarantee that these accounts will not be disclosed by Credit Suisse to the IRS. I would even venture to guess that the likelihood of the exposure of these accounts is very high now.

However, the IRS victory over Credit Suisse does not just stop at the Credit Suisse accountholders, but also all banks that dealt with Credit Suisse with respect to these US-owned accounts. This means that US taxpayers who transferred their funds out of Credit Suisse (presumably when they closed their non-compliant accounts) are likely to be at high risk of IRS detection.

Finally, Credit Suisse is likely to disclose to the IRS its main strategies with respect to opening, closing and maintaining non-compliant accounts through a business entity or a trust. This means that the IRS will now be able to initiate investigations based on patterns of activity, without necessarily having specific information about a given account. This means that all US taxpayers who benefitted from Credit Suisse help prior to the guilty plea by the bank, are likely to now be exposed (whether the intention behind this planning was tax evasion or legitimate asset protection).

The upshot of all of these factors is that US taxpayers who have had any undisclosed foreign bank accounts in Credit Suisse since 2008 are likely to be at high risk of IRS criminal investigation with huge FBAR monetary penalty exposure and potential jail sentence.

This means that these US taxpayers with undisclosed Credit Suisse bank accounts should consider their voluntary disclosure options as soon as possible. If the IRS learns about their identity prior to entering into a voluntary disclosure problem, the path to the OVDP (Offshore Voluntary Disclosure Program) may be closed with potentially huge disadvantages to such taxpayers.

Contact Sherayzen Law Office for Help with the Voluntary Disclosure of Your Credit Suisse Accounts

If you have undisclosed Credit Suisse accounts, contact Sherayzen Law Office for professional help. Owner Eugene Sherayzen is an experienced international tax lawyer who will thoroughly review the facts of your case, analyze your voluntary disclosure options, create a comprehensive voluntary disclosure strategy and implements (including preparation of all legal documents and tax forms as well as rigorous IRS representation).

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Businessman Jailed for Using Nevis Bank Account to Conceal Income

On May 7, 2014, the IRS and the DOJ announced the Robert C. Sathre was sentenced to serve thirty-six months in federal prison for tax evasion; Mr. Sathre was also ordered to pay $3,113,882 in restitution to the IRS and to serve three years of supervised release. Sathre pleaded guilty on February 26, 2014, to willfully evading the payment of his 1995 and 1996 tax liability.

Facts of the Case

According to court documents and proceedings, Mr. Sathre sold a Minnesota business and received installment payments in 1995 and 1996 of more than $3 million. Mr. Sathre concealed his income by filing a 1995 tax return in which he reported only $64,928 in total income. Mr. Sathre then purchased land and set up another business, a gas station and convenience store in Sheridan, Wyoming, known as the Rock Stop.

According to the DOJ, Mr. Sathre concealed assets by opening a foreign bank account in the Caribbean island of Nevis and by using purported trusts. During the ten-month period during 2005-2006, Mr. Sathre sent over $500,000 to the account in Nevis to keep the funds out of reach from the IRS. When Mr. Sathre sold the Rock Stop in 2007, he wired over $1,250,000 from the sale proceeds to the trust account of a Wyoming law firm. He later directed the law firm to wire $900,000 from the trust account to his account at the Bank of Nevis. Mr. Sathre also provided a false declaration and false promissory note to the Bank of Nevis to conceal the source of this transfer and obtained a debit card linked to the foreign account to access funds locally. In addition, Mr. Sathre provided the Bank of Sheridan with an IRS form on which he falsely claimed that he was neither a citizen nor a resident of the United States.

Analysis of Relevant Facts

The first interesting detail here is the period of time involved – 1995 and 1996. This is something to keep in mind for U.S. taxpayers with undisclosed offshore accounts – the IRS can look beyond the three- and six-year statutes of limitations in certain cases involving fraud and other criminal conduct.

Second, this seems to be one of the cases that would not have come out had the defendant not broken the U.S. tax laws again. It appears that the under-reporting on the 1995 and 1996 returns was not detected originally. However, when Mr. Sathre appears to have engaged in tax evasion with the second sale of Rock Stop in 2007 and commenced to transfer money to Nevis, he must have triggered an IRS investigation.

In fact, this case is an excellent illustration of the difference in the international tax enforcement between the pre-2001 period (i.e. prior to the IRS enforcement of FBAR and the DOJ campaign to enforce U.S. tax laws internationally) and the post-2001 period, especially after the UBS case and FATCA global enforcement.

Finally, as in many other criminal cases involving foreign accounts, the engagement in complex planning (i.e. using foreign trusts) to conceal the transaction must have greatly contributed to the decision by the IRS and the DOJ to pursue criminal penalties.

A Warning to U.S. Taxpayers with Undisclosed Nevis Bank Accounts

The Sathre case should be considered a warning to the U.S. taxpayers with undisclosed Nevis bank accounts. The IRS was able to retrace all of the transactions between the United States and Nevis. With FATCA global enforcement gaining steam, it is highly important for these taxpayers to realize that their undisclosed Nevis bank accounts may be discovered by the IRS and it may happen soon.

The consequences of such an investigation by the IRS may be grave as the present Sathre case demonstrates: large monetary penalties and incarceration.

This is why it is highly important for U.S. taxpayers with undisclosed Nevis Bank accounts to consider their voluntary disclosure options as soon as possible. My strong suggestion is to retain an international tax lawyer for this process.

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

If you have an undisclosed Nevis bank account, contact Sherayzen Law Office for professional help. Our international tax law firm is highly experienced in the matters of offshore voluntary disclosures. We have helped hundreds of taxpayers around the world and we can help you!

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Lebanon FATCA Note: Is the “Switzerland of Middle East” in the Crosshair of FATCA?

This Lebanon FATCA update is intended to provide a broad analysis of the impact of the U.S. Foreign Account Tax Compliance Act (“FATCA”) on the numerous U.S. accountholders in Lebanon.

Lebanon FATCA: Background Information

The Lebanese banking secrecy rules, commonly known as the “1956 Law”, have earned the country the unofficial title of the “Switzerland of the Middle East”. It is estimated that as many as 100,000 U.S. taxpayers took advantage of the 1956 law and opened foreign bank and financial accounts in Lebanon.

Lebanon FATCA: Foreign Account Tax Compliance Act Threatens the 1956 Law

The UBS case in 2008 became a crucial turning point in global tax compliance, because, for the first time, the US was able to leverage its economic might to break through the wall of bank secrecy in the country which, until recently, was synonymous with bank secrecy.

Encouraged by the crucial success over UBS in 2008, the IRS and U.S. Congress took an unprecedented step in international tax compliance with the passage of FATCA in 2010. FATCA is not just another law, but a new global standard for the international tax transparency which endangered all U.S. taxpayers with undisclosed foreign accounts.

One of the unique aspects of FATCA is that it requires foreign financial institutions (“FFIs”) to report directly or indirectly to the IRS all bank and financial accounts held by their U.S. customers. In essence, it turned foreign banks into the agents of the IRS compliance effort.

While FATCA requires legislative adjustments in many countries, in Lebanon, FATCA ran counter to the spirit and letter of the 1956 Law.

Lebanon FATCA: Initial and Subsequent Reaction in Lebanon

At first, the reaction of the Lebanese banks was very negative with even talk of accepting the 30% tax withholding requirement imposed by FATCA. As late as the first quarter of 2012, Lebanon was considered as one of the potentially most vexatious non-compliant countries.

By April of 2012, however, the attitude of the Lebanese banks and Lebanese financial authorities began to change rapidly. In February of 2013, the head of Lebanon’s banking association stated that the Lebanese banks will cooperate with FATCA.

At the present time, all major Lebanese Banks (such as Bank Audi, Blom Bank, Bank of Beirut and so on) are in the process of implementing FATCA regulations. Given the another unprecedented step by the U.S. government – voluntary disclosure program for banks in Switzerland – it is expected that the Lebanese Banks (as the example of Bank of Beirut demonstrated) will strive to implement FATCA as fast as posssible.

Lebanon FATCA: What Does FATCA Compliance Mean for U.S. Taxpayers with Undisclosed Accounts in Lebanon

The move of the Lebanese banks toward FATCA compliance has profound consequences for all U.S. taxpayers with undisclosed bank and financial accounts in Lebanon even though the exact impact is not likely to be felt in the same way by all U.S. accoundholders (due to the individual circumstances of each U.S. taxpayer).

At this point, these U.S. taxpayers with Lebanese accounts should understand that their account information is likely to be reported by the Lebanese banks to the IRS within a fairly short time (it is hard to state it exactly and some of the account information may have already been disclosed, but I would expect the Lebanon FATCA compliance to be firmly implemented by the end of 2014 or early 2015). This development is likely to have two major effects on U.S. taxpayers. First, the U.S. accountholders whose information will be disclosed to the IRS are not going to be able to enter the OVDP (unless there is a specific exception or a chance in the OVDP rules), which is the official IRS voluntary disclosure program for offshore accounts.

Second, once the IRS follows up on the information that it receives from the Lebanese banks (i.e. opens up an investigation), these taxpayers are likely to suffer from the imposition of the draconian FBAR willful penalties. Criminal penalties, including jail time, are also possible. See this article for a more detailed explanation of the FBAR penalties.

Thus, the implementation of FATCA in Lebanon means the end of 1956 Law and Lebanese Bank Secrecy for U.S. taxpayers. It also means that the U.S. taxpayers with undisclosed Lebanese accounts are currently in a very dangerous position and may face heavy penalties.

Lebanon FATCA: U.S. Taxpayers with Undisclosed Accounts in Lebanon Should Explore their Voluntary Disclosure Options As Soon As Possible

With the implementation of FATCA in Lebanon, U.S. taxpayers have to act fast if they want to reduce or avoid IRS penalties. This is why they should consult an experienced international tax attorney who specializes in offshore voluntary disclosures as soon as possible.

Contact Sherayzen Law Office for Professional Legal and Tax Help With the Voluntary Disclosure of Lebanese Bank and Financial Accounts

If you have undisclosed bank or financial accounts in Lebanon, contact the offshore voluntary disclosure experts of Sherayzen Law Office now. Our experienced international tax law firm will thoroughly analyze your case, advise on the available voluntary disclosure options, prepare all necessary tax forms and legal documents, and professionally represent your interests through the IRS voluntary disclosure process.

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).

Do I need an Accountant or Attorney for Form 8938 Offshore Assets Disclosure?

A lot of taxpayers are still confused about whether they need an attorney or an account to file delinquent Forms 8938. As I explain below, Form 8938 is an essentially legal disclosure form and its voluntary disclosure should be handled by an experienced international tax attorney.

Form 8938 Requires Legal Disclosure

It is important to understand that Form 8938, more than any other form except the FBAR now Form 114 (TD F 90-22.1), requires a legal disclosure of specified foreign assets. The form does not involve any accounting calculations of tax liability or even knowledge of US GAAP (something that other information tax returns, like Forms 5471 or 8865, may require). The taxpayer simply needs to disclose his ownership of specified offshore assets according to the instructions of Form 8938.

Failure to File Form 8938 Is a Legal Issue

Since Form 8938 is a legal disclosure form, the failure to file the form and the penalties associated with the form constitute a legal problem that should be handled by an international tax attorney, not an accountant.

This is even more the case because the strategy with respect to handling Form 8938 and the explanation of the reasonable cause require advocacy – a critical skill which is a part of an attorney’s basic training, but which the accountants are not likely to possess.

Clients need an advocate to deliver their position to the IRS in a clear manner. Clients need an advocate to be able to interpret the law, not simply assume that what the IRS agent is saying is the only true version of the law. Finally, clients need an advocate to defend their interests with skill and persuasion.

Tax attorneys are advocates, not simply calculators. Despite the seeming confusion over the role of the two professions, an attorney’s entire approach is likely to be radically different from that of an accountant simply because attorneys are trained to think and act in a completely different manner.

Contact Sherayzen Law Office for Legal Help with Your Voluntary Disclosure of Specified Foreign Assets

If you have undisclosed offshore assets that should have been disclosed on Form 8938, contact Sherayzen Law Office NOW. Our experienced international tax firm will thoroughly analyze your case, estimate your potential Form 8938 penalties, identify all non-compliance issues, and develop a comprehensive approach to your offshore voluntary disclosure.