Vadian Bank AG Signs Non-Prosecution Agreement with DOJ

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On May 8, 2015, Vadian Bank AG (Vadian) became the second bank to sign a Non-Prosecution Agreement with the US Department of Justice (DOJ) pursuant to the DOJ Program for Swiss Banks.

Program for Swiss Banks: Background Information

On August 29, 2013, the DOJ announced the creation of the “The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (Program)”. The basic goal of the program was to allow Swiss banks to purge themselves of the prior US tax non-compliance (or complicity with such non-compliance) in exchange for providing DOJ with detailed description of their illegal activities, bank accounts owned by US persons and, in many cases, the payment of monetary penalties.

The Program is a really a version of the 2014 OVDP for foreign banks. However, it was not open to all banks. The banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

As of the time of this writing, the application process has already been completed for the great majority of the Swiss banks, and the Program has entered into the resolution phase (i.e. the review of the banks’ disclosure and penalty calculation).

Vadian bank’s case was the second such case that completed the resolution phase (BSI SA was the first bank to do so).

Vadian Bank Background

Vadian has one office and 26 employees. Prior to 2008, Vadian’s business predominantly consisted of savings accounts, residential mortgage lending and small business loans. In 2007, Vadian hired a marketing firm to assist with its planned growth into private banking, and focused its efforts on attracting external asset managers. In 2008, after it became publicly known that UBS was a target of a criminal investigation, Vadian accepted accounts from U.S. persons who were forced out of other Swiss banks. At this time, Vadian’s management was aware that the U.S. authorities were pursuing Swiss banks that facilitated tax evasion for U.S. accountholders in Switzerland, but was not deterred because Vadian had no U.S. presence. As a result of its efforts, after August 2008, Vadian attracted cross-border private banking business and increased its U.S. related accounts from two to more than 70, with $76 million in assets under management.

Through its managers, employees and/or other individuals, Vadian knew or believed that many of its U.S. accountholders were not complying with their U.S. tax obligations, and Vadian would and did assist those clients to conceal assets and income from the IRS. Vadian’s services included: “hold mail” services; numbered accounts, where the client was known to most bank employees only by a number or code name; opening and maintaining accounts for U.S. taxpayers through non-U.S. entities such as corporations, trusts or foundations; and accepting instructions from U.S.-based accountholders to prevent investments from being made in U.S.-based securities that would require disclosure to U.S. tax authorities.

Vadian Bank: Terms the DOJ Non-Prosecution Agreement

According to the terms of the non-prosecution agreement that was signed on May 20, 2015, Vadian agreed to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay a $4.253 million penalty in return for the department’s agreement not to prosecute Vadian for tax-related criminal offenses.

In resolving its criminal liabilities under the program, Vadian also provided extensive cooperation and encouraged U.S. accountholders to come into compliance.

Consequences of Vadian Non-Prosecution Agreement for Vadian US Accountholders

If you have (or had at any point since the year 2008) undeclared foreign accounts at Vadian, you may still be eligible to participate in the OVDP (assuming that you can pass the IRS-CI Preclearance process). However, the price of participating in the OVDP has almost doubled from the pre-Agreement 27.5% to the current 50% of the highest value of your undisclosed foreign assets.

Of course, if the behavior was non-willful, Streamlined options remain available at the same penalty rates.

What Should Vadian US Accountholders Do?

If you are a US person and an accountholder at Vadian, please contact the experienced international tax law firm of Sherayzen Law Office to explore your voluntary disclosure options as soon as possible.

BSI SA is the First Bank to Reach Resolution Under Swiss Bank Program

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On March 30, 2015, the US Department of Justice announced that BSI SA, one of the 10 largest private banks in Switzerland, was the first bank to reach a resolution under the DOJ Swiss Bank Program.

Background Information

The Swiss Bank Program, which was announced on August 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States. Swiss banks eligible to enter the program were required to advise the department by December 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared United States-related accounts. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

“Because of the department’s continuing efforts to root out offshore tax evasion, Swiss banks are operating much differently today than they did just a few years ago, and the department’s Swiss Banking Program is a big part of that change,” said Acting Deputy Attorney General Sally Quillian Yates. “When we announced the program, we said that it would enhance our efforts to pursue those who help facilitate tax evasion and those who use secret offshore accounts to evade taxes. And it has done just that. We are using the information that we have learned from BSI and other Swiss banks in the program to pursue additional investigations into both banks and individuals.”

Since 2009, the department has charged more than 100 offshore bank accountholders, dozens of facilitators, and financial institutions. The department’s offshore enforcement efforts have reached far beyond Switzerland, as evidenced by publicly announced actions involving banking activities in India, Luxembourg, Liechtenstein, Israel and the Caribbean.

“Today’s action sends a clear message to anyone thinking about keeping money offshore in order to evade tax laws,” said Chief Richard Weber of IRS-Criminal Investigation (CI). “Fighting offshore tax evasion continues to be a top priority for IRS-CI and we will trace unreported funds anywhere in the world. IRS-CI special agents are our nation’s best financial investigators, trained to follow the money and enforce our country’s tax laws to ensure fairness for all.”

BSI – DOJ Non-Prosecution Agreement

According to the terms of the non-prosecution agreement signed on March 30, 2015, BSI agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts, and pay a $211 million penalty in return for the department’s agreement not to prosecute BSI for tax-related criminal offenses.

BSI had more than 3,000 active United States-related accounts after 2008, many of which it knew were not disclosed in the United States. In resolving its criminal liabilities under the program, BSI provided extensive cooperation and encouraged hundreds of U.S. accountholders to come into compliance. BSI is also assisting with ongoing treaty requests.

BSI’s Past Activities

BSI helped its U.S. clients create sham corporations and trusts that masked the true identity of its U.S. accountholders. Many of its U.S. clients also opened “numbered” Swiss bank accounts that shielded their identities, even from employees within the Swiss bank. BSI acknowledged that in order to help keep identities secret, it issued credit or debit cards to many U.S. accountholders without names visible on the card itself.

BSI not only helped U.S. clients shield their identity from the Internal Revenue Service (IRS), but helped them repatriate cash as well. BSI admitted that its relationship managers and their U.S. clients used code words in emails to gain access to funds.

Consequences for US Taxpayers With Undisclosed Foreign Accounts

The consequences of the BSI’s participation in the DOJ Program for Swiss Banks are far reaching for the US taxpayers with undisclosed foreign accounts, particularly BSI accounts.

First, the most immediate consequence of the BSI’s Non-Prosecution Agreement is the higher OVDP penalty. Most U.S. taxpayers who enter the IRS offshore voluntary disclosure program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts. On August 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement. With today’s announcement of BSI’s non-prosecution agreement, its noncompliant U.S. accountholders must now pay that 50 percent penalty to the IRS if they wish to enter the OVDP program.

Second, as part of its participation in the DOJ Program for Swiss Banks, BSI provided a very large amount of information regarding its US accountholders as well as individuals who facilitated US tax evasion. This means that these individuals are at the very high risk of being investigated and/or prosecuted by the IRS for tax non-compliance.

Third, as part of its participation in the DOJ Program for Swiss Banks, BSI (and other banks in the Swiss Bank Program) also provided detailed information to the DOJ about transfers of money from Switzerland to other countries. The Tax Division and the IRS intend to follow that money to uncover additional tax evasion schemes.

This means that any US taxpayers who transferred the money out of Switzerland to avoid Swiss bank disclosure are at very high risk of the IRS detection.

What Should US Taxpayers with Undisclosed BSI and Other Swiss Bank Accounts Do?

If you are a US taxpayer who has (or had any point since 2008) undisclosed financial accounts at BSI and any other Swiss bank, you should contact an international tax lawyer to consider your voluntary disclosure options as soon as possible.

What if voluntary disclosure is no longer possible due to investigation by the IRS? The answer that your international tax lawyer will give you is likely to depend on the facts of the case. In some cases, it may be best to pursue a noisy voluntary disclosure option. In other cases, it may be best to contact the IRS and work with them directly to reduce the penalties.

“An individual is not culpable simply because he or she is identified by a bank within the program,” said Acting Assistant Attorney General Caroline D. Ciraolo of the department’s Tax Division. “With that said, the department strongly encourages those individuals and entities currently under indictment, under investigation, or who have concerns regarding their potential criminal liability to contact and fully cooperate with the department to reach a final resolution.”

Contact Sherayzen Law Office for Professional Help With Undisclosed Foreign Accounts

If you have (had at any point since the year 2008) undisclosed foreign accounts (whether BSI accounts or any other foreign bank), you should contact the international tax law firm of Sherayzen Law Office for experienced professional help.

We have helped hundreds of US taxpayers around the globe to bring their US tax affairs in compliance with the simultaneous goal of reducing the penalty exposure to a reasonable amount under the IRS rules. And we can help You!

Contact Us to Schedule Your Confidential Consultation Now!

Minneapolis MN FATCA Tax Lawyer Update: FATCA-Related Forms

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As a Minneapolis MN FATCA Tax Lawyer, I often receive questions about what US tax forms precisely are affected by the implementation of the Foreign Account Tax Compliance Act (FATCA). Here is a list of the tax forms most affected by FATCA:

1. Minneapolis MN FATCA Tax Lawyer: IRS Form 1042 and 1042-S

Form 1042 is used as an annual withholding tax return for US-source income of non-US persons. Form 1042-S is used to report income that is considered to be “Amounts Subject to Reporting on Form 1042-S” (basically US-source income paid to foreign persons such as FDAP (fixed or determinable annual or periodical) income; certain gains from the disposal of timber, coal or domestic iron; and gains related to contingent payments received from the sale or exchange of intangible property (such as intellectual property rights), amounts withheld under Chapters 3 and 4 of the Internal Revenue Code, distributions of effectively connected income by a publicly traded partnership (or nominee), and certain federal procurement payments paid to foreign persons who are subject to withholding under Section 5000C.

2. Minneapolis MN FATCA Tax Lawyer: IRS Form 8966

For a Minneapolis MN FATCA Tax Lawyer, IRS Form 8966 is highly important. The main reason is because Form 8966 is an actual FATCA Report that needs to be filed by foreign financial institutions (FFIs) and their variations (PFFI, Us Branch of a PFFI treated as non-US person, RDC FFI, Limited Branch or Limited FFI, and Reporting Model 2 FFI), QI (qualified intermediary), WP (withholding foreign partnership), WT (withholding foreign trust) , direct reporting NFFE, and a Sponsoring Entity.

The purpose of this form is to allow these filers to report the required FATCA information with respect to mainly foreign accounts held (directly or indirectly) by US persons.

3. Minneapolis MN FATCA Tax Lawyer: IRS Forms W-8 Series

The full list of these forms include: Form W-8BEN, Form W-8BEN-E, W-8ECI, Form W-8EXP, and W-8IMY. The full discussion of these forms is beyond the scope of this article; suffice it to state that all of these forms play a critical part in FATCA and tax withholding compliance of various FFIs and NFFEs.

4. Minneapolis MN FATCA Tax Lawyer: IRS Form 8938

As a Minneapolis MN FATCA Tax Lawyer, I believe that IRS Form 8938 is one of the most important developments that came out of FATCA. Unlike the other forms listed in this article, this form needs to be prepared directly by the US taxpayers and filed with their US tax returns. The importance of this form cannot be overstated, because Form 8938 is a “catch-all” form which steps-in with its own reporting requirements when other international tax forms are not required. It also incorporates by reference some of the most important international tax compliance requirements even when other international tax forms contain detailed information.

Minneapolis MN FATCA Tax Lawyer: Other Forms

The four categories of forms above describe the US tax forms that have been impacted by FATCA in a direct and profound way. There are other forms that have been affected by implementation of FATCA, but this impact is a rather indirect one (by reference or implication).

Cayman Islands FATCA Registration Portal

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On March 20, 2015, the Cayman Islands FATCA Registration Portal was launched by the Department for International Tax Cooperation (which is a department within Cayman Islands Tax Information Authority).

Cayman Islands FATCA Background 

The Cayman Islands FATCA Registration Portal is part of the long process of Cayman Islands FATCA compliance. Cayman Islands FATCA IGA (Model 1) was signed with the United States on November 29, 2013. At the same time, Cayman Islands signed the amended Tax Information Exchange Agreement. Both of these developments led to the creation of the Portal as a way to automatically exchange information required by FATCA between Cayman Islands and the United States.

It is also important to point out that Cayman Islands FATCA compliance was not only driven by the US considerations, but also by the UK considerations. As an overseas territory of the United Kingdom, Cayman Islands had to come to an agreement with the United States that could not have been better the terms negotiated between the UK and Cayman Islands with respect to the exchanges of tax-related information.

Purchase of the Portal

The Portal plays a critical role in Cayman Islands FATCA compliance, because it allows Cayman’s financial institutions (including the investment funds based in Cayman islands) to report information required by FATCA to the Cayman Islands Tax Information Authority, which, as it is mandated by Model 1 FATCA agreement, will turn over the required information to the IRS.

Registration

As part of Cayman Islands FATCA compliance, the Cayman Islands Tax Information Authority warned the island’s financial institutions that they much must register via the Portal by April 30, 2015 and provide their names, FATCA classification, principal point of contact and other information.

Reporting Deadline by May 31, 2015

The deadline for reporting the 2014 (calendar year) information by the Cayman’s financial institutions must be done by May 31, 2015. The information that will have to be submitted through the Portal is the one usually required by FATCA, including:

1. US person’s name, address and tax identification number (and date of birth, where applicable);
2. US person’s account number or its equivalent;
3. Name and ID of the reporting financial institution; and
4. Year-End Balance of the account.

Interestingly enough, the UK FATCA requirement for Cayman Islands is much later – May 31, 2016.

Caymans Islands FATCA Compliance Is Not Unique

Cayman Islands FATCA compliance through a Portal is now a common theme throughout the world. In fact, it is expected that most of the Model 1 FATCA countries around the world have either complied with 2014 US FATCA requirements or will do so soon, and they are likely to be using a Portal of some kind.

For example, it is expected that the following jurisdictions will do their FATCA reporting through an information reporting system (deadlines in parenthesis): Ireland (June 30, 2015), Luxembourg (June 30, 2015), United Kingdom (May 31, 2015), Canada (May 2, 2015), and so on.

What Portal Means for US Persons with Undisclosed Cayman Islands Accounts

If you are a US person with undisclosed foreign accounts in Cayman Islands (any many other jurisdictions around the world), you are very likely to have very little time left before your account will be disclosed to the IRS. The penalties (especially FBAR and Form 8938 penalties) for failure to report foreign accounts can be draconian, including potential incarceration. Moreover, once the IRS learns about the existence of your account and initiates an invest, you may not be able to do a voluntary disclosure to reduce your penalties.

This means that US persons with undisclosed foreign accounts need to immediately contact an experienced international tax lawyer to explore their voluntary disclosure options in order to timely file their request for Preclearance.

Contact Sherayzen Law Office for Professional Help With Disclosing Your Foreign Accounts

Sherayzen Law Office, Ltd. is the experienced international tax firm that can help you with the voluntary disclosure of your foreign accounts. We have already successfully helped hundreds of US taxpayers around the world to conduct various types of voluntary disclosures (SDOP (Streamlined Domestic Offshore Procedures), SFOP (Streamlined Foreign Offshore Procedures), Delinquent Information Returns, Delinquent FBAR Submission, and Noisy/Reasonable Cause disclosures), and We can help You!

Contact Us to Schedule Your Confidential Consultation!

2015 Second Quarter IRS Underpayment and Overpayment Interest Rates

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On March 13, 2015, the IRS announced that the underpayment and overpayment interest rates for the calendar quarter beginning April 1, 2015, will remain unchanged. The rates will be:

three (3) percent for overpayments [two (2) percent in the case of a corporation];
three (3) percent for underpayments;
five (5) percent for large corporate underpayments; and
one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

How are the IRS Underpayment and Overpayment Rates Determined?

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

What do the IRS Underpayment and Overpayment Rates Affect?

The most important impact of the IRS underpayment and overpayment rates is felt whenever the tax liability of a US taxpayer changes from the liability indicated on the original tax return. Most often, this happens as a result of an amended tax return filed voluntarily by the taxpayer or as a result of an IRS audit.

If, as a result of an audit or an amended tax return, the taxpayer is assessed with additional tax liability, the underpayment interest rate will be applied from the due date of the original tax return (usually, April 15) through the date of assessment of additional tax liability (or the date the amended tax return is filed). Conversely, if an amended tax return or an IRS audit produces a refund, then, the IRS is obligated to pay the overpayment interest rate on the refund due.

IRS Underpayment Rate and PFIC Calculations

The IRS Underpayment Rate has a surprising additional affect on a taxpayer’s liability. If a taxpayer owns a PFIC that is considered a Section 1291 fund, then, under the default PFIC method, he will need to calculate PFIC interest on the PFIC tax due. This PFIC interest is calculated at the IRS underpayment rates.