Swiss Accounts IRS Tax Lawyer News: US v. Victor Lipukhin

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On March 20, 2014, the politics and FBAR criminal enforcement met again in a new case, U.S. v. Victor Lipukhin – a case of continuous interest for a Swiss Accounts IRS Tax Lawyer. While the timing is most likely driven by politics, this case also resulted from the fallout of the UBS 2009 settlement; under the settlement, the UBS paid a fine and disclosed a large number of the secret Swiss bank accounts held by U.S. persons.

In U.S. v. Victor Lipukhin, Mr. Lipukhin was charged with an attempt to interfere with the administration of the internal revenue laws and filing false tax returns. Specifically, obstruction charges under IRC Section 7212(a) and filing of false tax returns charges under Section 7206(1) were mentioned. According to the U.S. Department of Justice (DOJ) and the IRS, the “charges relate to Lipukhin hiding millions of dollars in several Swiss bank accounts held at UBS AG.” While it is not expressly spelled-out by the DOJ, it appears that there are multiple counts of violations under both IRC sections.

Swiss Accounts IRS Tax Lawyer News: Facts of the Case

According to the indictment, Mr. Lipukhin kept between $4,000,000 and $7,500,000 in assets in two bank accounts with UBS in Switzerland from at least 2002 through 2007. The first account was opened in 2002 under the name of a Bahamian entity, “Old Orchard”. The account was initially funded with over $47,000,000 transferred into the account from a previously maintained UBS account in the Bahamas. The second account was maintained at UBS in Switzerland in the name of another Bahamian entity, “Lone Star”.

DOJ alleges that Mr. Lipukhin directed virtually all transactions in the accounts, typically through a Bahamian national who served as the nominee director of the Old Orchard and Lone Star entities. The DOJ also alleges that, “in order to further conceal his ownership of the undisclosed UBS accounts, Lipukhin utilized fictitious mortgages through an entity called Dapaul Management, controlled by a Canadian attorney, to conceal his purchase of real estate in the United States with funds from the UBS accounts.” The assets include a purchase of a historic building for $900,000 in the name of Charlestal LLC, a domestic entity controlled by Lipukhin. He also transferred funds from his UBS accounts to the Canadian attorney for the ultimate transfer to a domestic Charlestal bank account in order to conceal the source of the funds. Mr. Lipukhin then used the funds in the Charlestal account to pay for various personal expenses and to withdraw cash for personal use.

The final charge in the indictment is a curious one: “Lipukhin impeded the administration of Internal Revenue laws by attempting to prevent an automobile dealer from filing a Form 8300 – which is required for certain cash transactions over $10,000 – with the IRS in order to report Lipukhin’s cash payment to purchase an automobile.”

According to DOJ, Mr. Lipukhin failed to report his ownership of these accounts (on Schedule B and the FBARs) and failed to report any income earned in these accounts on his tax returns.

Swiss Accounts IRS Tax Lawyer News: Potential Penalties

According to the indictment, Mr. Lipukhin is charged with committing a crime. He faces a potential maximum sentence of three years of imprisonment on each count.

Swiss Accounts IRS Tax Lawyer News: Peculiar Facts

Some of the facts of the case here are of a very high interest to a Swiss Accounts IRS Tax Lawyer and U.S. taxpayers with undisclosed Swiss accounts.

The first important feature of the case is the fact that Mr. Lipukhin was never a U.S. citizen. He is a citizen of the Russian Federation and a former lawful permanent U.S. resident. While it may be true that the current political context had a lot to do with the timing of the charges being filed by the DOJ, this is another example that negates the false myth that is being propagated by some tax preparers (especially in the ethnic communities – particularly Indian and Chinese) that IRS would not criminally charge a non-citizen permanent resident. Nothing in my practice suggests that the citizenship of a U.S. taxpayer has any serious impact on the IRS enforcement of FBAR criminal penalties.

The second important feature to notice are the years involved in the indictment: 2002 through 2007. This case is bound to have an interesting development with respect to the Statute of Limitations (although, it will be difficult to get around IRC Section 6501(c) except by negating the charge of the “false tax return”) and it partially explains why there were no FBAR charges filed against Mr. Lipukhin (see below).

Third, notice the use of third parties and the various offshore entities to conceal the ownership of UBS Swiss accounts. As any experienced Swiss Accounts IRS Tax Lawyer would confirm, this is a highly negative set of facts and has tremendously contributed to the filing of criminal charges against Mr. Lipukhin. U.S. taxpayers with undisclosed Swiss accounts owned by sham offshore entities should be aware of the criminal implications of such an action. On the other hand, if they were advised incorrectly to do so for purely asset protection purposes, this fact should be analyzed by their Swiss Accounts IRS Tax Lawyer.

Fourth, it is important to consider the circle of transactions that led the money back to the United States with the purchase of U.S. real estate. There are very important implications of these moves in the voluntary disclosure context, but, here, I just want to mention that this case is another example of the falsehood of another myth – that, as long as the money is back in the United States, the IRS will not conduct a criminal investigation of the formerly non-compliant U.S. taxpayers. I am not sure where this myth originated, but I have seen some foreign-born U.S. taxpayers being trapped in this misconception.

Finally, the last charge of impeding the filing of Form 8300 for cash purchase of a car is highly unusual for a Swiss Accounts IRS Tax Lawyer to see in this context. It also appears that Mr. Lipukhin’s attempt to prevent the filing of Form 8300 was not successful and Form 8300 was actually filed. If this is the case, it seems that this charge is probably more politically motivated; though, it could have been used to buttress the case for criminal non-compliance further. Nevertheless, it is important to remember that an interference with a third-party tax compliance is a federal crime and may be prosecuted by the DOJ.

Swiss Accounts IRS Tax Lawyer News: Why FBAR Charges Were Not Included

For a Swiss Accounts IRS Tax Lawyer, U.S. v. Lipukhin is also an interesting case from another perspective – the statute of limitations with respect to filing an FBAR. The statute of limitations can be found in IRC 5321(b)(1). Generally, it is six years from the date of transaction (i.e. the IRS has six years from the date of transaction to assess FBAR penalties). For the purposes of the FBAR filing violations, the date of the transaction is the due date for filing the FBAR (i.e. formerly June 30 of the calendar year following the year to be reported).

This explains why the FBAR charges were not filed by the IRS for the years 2002-2006; the assessment period has expired for these years. However, it should be noted that 2007 statute of limitations is still open until June 30, 2014; it is unclear why the IRS chose not to pursue the FBAR criminal penalties with respect to 2007 (perhaps, the accounts were already closed or had an insignificant balance by that time).

Contact Sherayzen Law Office for Help With Respect to Foreign Bank and Financial Accounts

If you have undisclosed Swiss bank accounts; if you are facing civil FBAR penalties; or if you are facing other IRS penalties; contact Sherayzen Law Office experienced international tax law firm for professional help.

Swiss Bank Letters Cause Legal Complications for U.S. Taxpayers

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The Swiss Bank letters continue to pour into the mailboxes of U.S. taxpayers with bank and financial accounts in Switzerland as the April 30th deadline approaches for many Swiss banks that participate in the ongoing U.S. Department of Justice (“DOJ”) The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (the “Program”). In an earlier article, I already discussed what the Swiss Bank letters contain, and the importance of the need for the comprehensive analysis of the offshore voluntary disclosure options. In this article, I would like to concentrate on another aspect of Swiss Bank letters – the top three legal complications that these Swiss Bank letters cause to U.S. taxpayers.

1. Swiss Bank Letters Provide Notice of Non-Compliance with the FBAR and Other International Tax Compliance Requirements

The first problem with the Swiss Bank Letters is that they provide the notice of non-compliance with the FBAR and other important international tax requirements (depending on the Bank, it can include such Forms as 5471, 8865, 926, 3520 and so on). The issue here is not so much that the Banks are making their U.S. taxpayers aware of the U.S. tax reporting requirements, but the context in which this is done.

If the Swiss Bank letters were to arrive upon the opening of a Swiss bank account or, at least, prior to the Program, it would be a huge benefit to the unsuspecting U.S. taxpayers. However, this is not the case. Rather, the notice of these requirements is given after a potentially substantial period of non-compliance with these requirements.

Moreover, the Swiss Bank letters provide a notice of non-compliance in the context of forced disclosure under the terms of the Program. Such notice has a potential to taint disclosures outside of the OVDP with the same air of the taxpayer being “forced” to disclose as opposed to doing it voluntarily (at the very least, the argument that the taxpayer is doing this disclosure without any pressure from the IRS definitely loses credibility).

Finally, the Swiss Bank letters provide a Notice of non-compliance with requirements, without even attempting to educate their audience about these requirements or suggesting to contact an international tax attorney to see if these taxpayers are really in violation of these requirements. For example, how would a taxpayer know whether Form 3520 requirement actually applies to him?

2. Swiss Bank Letters Start the Clock for Disclosure Under Extreme Time Pressure

The second problem with Swiss Bank letters is that they start the clock for the taxpayer to be able to disclosure his accounts voluntarily under an enormous time pressure. A lot of the banks that send these Swiss Bank letters will disclose by April 30, 2014. This means that the taxpayers who receive the Notice today have less than two months to disclose their accounts voluntarily before they run an enormous risk of prior disclosure of their accounts by Swiss banks to the IRS (with the effect on potentially preventing these taxpayers from entering into the OVDP). Even the taxpayers who received notices at the end of last year and January of this year are not much better off.

This is a very big problem, because time pressure may not allow the taxpayers to choose the right type of voluntary disclosure. Moreover, even if they wanted to do one type of disclosure rather than another, their options may be limited due to insufficient time to implement the strategies necessary to make their preferred choice of the voluntary disclosure successful.

3. Swiss Bank Letters May Mislead U.S. Taxpayers in Believing that OVDP is the Only Option

Swiss Bank letters uniformly advise their clients to enter into the OVDP without ever mentioning any alternatives. It is as if the assumption of willful failure to file FBARs is already written into the Swiss Bank letters. Theoretically, one could even argue that, by advising taxpayers to enter the OVDP instead of consulting an international tax attorney about their options, some of the Swiss Bank letters over-step their boundaries and enter the world of giving legal advice without a license.

At the practical level, the problem is even more profound. The Swiss Bank letters have the potential to mislead U.S. taxpayers with undisclosed accounts into believing that OVDP is the only option available to them and they have to take this option because their bank will soon disclose their accounts to the IRS. While, undoubtedly, OVDP may be the best option in many cases, this may not be true in other cases. The problem is that, the way Swiss Bank letters are drafted, the U.S. taxpayers may never be even given the choice.

Contact Sherayzen Law Office for Help If You Received Swiss Bank Letters

Sherayzen Law Office is here to help you with the voluntary disclosure of your Swiss bank and financial accounts. Owner Eugene Sherayzen is an international tax attorney and expert in this field who can analyze the facts of your case and explain to you the available voluntary disclosure options. After you choose the voluntary disclosure option, our firm can prepare all legal documents and tax forms required for your voluntary disclosure, fully implement the ethically available strategies and rigorously defend your position against the IRS.

Contact Us for a Confidential and Privileged Consultation!

Quiet Disclosure: The Russian Roulette of FBAR Disclosures

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There used to be a time when quiet disclosures with respect to offshore income and accounts were routinely recommended by accountants and even attorneys. Even as the tide turned against non-compliant U.S. taxpayers with offshore accounts in 2008-2009 with the spectacular IRS success in the UBS case and the announcement of the 2009 Offshore Voluntary Disclosure Program, these tax professionals persisted in advising their clients to follow the “quiet” course of action. Amazingly enough, even in March of 2014, I still see clients who have been advised to conduct quiet disclosures without adequate assessment of risks that such course of action entails.

In this article, I will argue that the era of quiet disclosures is over and a non-compliant taxpayer who embarks on this course is assuming the risks comparable to engaging in a game of a Russian Roulette with the IRS.

Definition of “Quiet Disclosure”

The definition of what constitutes “quiet disclosure” has changed over time; at some point, there were tax professionals who used it in such as a broad manner as to include something that we would not consider as quiet disclosure today but rather “reasonable cause disclosures” (also known as “modified voluntary disclosures” or “noisy disclosures”).

Today, the term generally refers to disclosures where a taxpayer would file amended returns, pay any related tax and interest (oftentimes, the payment of accuracy-related penalties is included in such a disclosure) for previously unreported offshore income, and file the current year’s information returns without otherwise notifying the IRS.

Note the two critical aspects of this definition that differentiate quiet disclosures from any other types of voluntary disclosures. First and foremost – “without otherwise notifying the IRS”. This is the “quiet” aspect of the disclosure. At no point is the taxpayer notifying the IRS about his non-compliance; he just simply hopes to pay the tax with interest without attracting IRS attention to his prior non-compliance.

The second critical aspect of quiet disclosures is compliance with current year’s information returns (such as FBARs, Forms 5471, et cetera), but not prior years’ information returns. Filing prior years’ information returns would imply providing IRS with evidence of prior non-compliance and, without adequate explanation, a set of penalties may be imposed on the taxpayer. This is why, in a quiet disclosure, the non-compliant taxpayer only files the current year’s FBAR.

Current International Tax Enforcement of FBAR Compliance; Impact of FATCA

It is my argument that, in the current international tax enforcement environment, the quiet discloser strategy is likely to have a counter-productive effect and may actually lead to disastrous results later. So, what is so different about today’s world versus the one in 2007?

Two words summarize the difference: “UBS” and “FATCA”. The IRS victory in the UBS case in 2008 marked a radical change to the worldwide tax compliance and completely overthrew the traditional conception of the bank secrecy laws (at least, with respect to U.S. taxpayers). The IRS proved that it can get to U.S. taxpayers wherever they have their accounts despite the sovereign objections of other countries; most shockingly, the IRS proved it in a country the name of which was synonymous with “bank secrecy” for centuries. This is one of the reasons why the 2009 OVDP, 2011 OVDI and the current 2012 OVDP, 2014 OVDP programs (now closed) proved to be such a success.

If the UBS case seriously crippled the bank secrecy laws in Switzerland, the enaction of the Foreign Account Tax Compliance Act (“FATCA”) by the U.S. Congress in 2010 dealt a death blow to the bank secrecy laws worldwide with far reaching consequences. FATCA not only swept away the bank secrecy considerations in Switzerland, but the great majority of other jurisdictions such as Liechtenstein, Monaco, Jersey Islands, Lebanon, Panama, the various Caribbean islands, and other places where bank secrecy laws protected non-compliant U.S. taxpayers.

Moreover, by turning foreign banks into U.S. reporting agents who voluntarily report information on all of their U.S. accountholders, the IRS is gradually achieving its long-term goal of worldwide tax compliance with only a fraction of the costs that would otherwise be necessary if the IRS were to investigate each bank in the world individually (something that the IRS simply would not have the resources to do).

In such a tax enforcement environment, it is dangerously naive to expect prior FBAR non-compliance would not be discovered by the IRS – an assumption that forms the core of the quiet disclosure strategy.

Swiss Program for Banks; Willful and Criminal Penalties

In addition to the tectonic shifts in the international tax compliance as a result of the UBS Case and FATCA, the U.S. government pushed the concept of the “voluntary compliance” to the extreme through the U.S. Department of Justice (“DOJ”) Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (the “Program”). In essence, this is a voluntary disclosure program for the Swiss Banks, where the Swiss Banks have to disclose information with respect to U.S. taxpayers in exchange for the DOJ”s promise not to sue them.

There is one particular aspect of the Program that I want to emphasize because of its relevance to the quiet disclosure strategy – the disclosure of U.S. accountholders goes back to August 1, 2008. This means that if a U.S. taxpayer with unreported Swiss accounts from 2008 made a quiet disclosure in the tax year 2009, his former non-compliance will be exposed by the Program.

Not only that, but, at this point, his prior non-compliance is likely to be considered willful and the prospect of gigantic willful civil and criminal penalties becomes almost imminent (especially, if his ability to enter the OVDP is hindered for one reason or another). See, for example, this passage from the FAQ instructions to OVDP: “When criminal behavior is evident and the disclosure does not meet the requirements of a voluntary disclosure under IRM 9.5.11.9, the IRS may recommend criminal prosecution to the Department of Justice” (see FAQ 16).

It is important to note that there are very good reasons to believe that the “Swiss Program for Banks” scenario is likely to be repeated elsewhere with uncertain look-back periods.

FBAR Quiet Disclosure Is Likely to Lead to Untenable Willful FBAR Non-Compliance in the Event of IRS Discovery

Now, we are approaching the core reasoning behind my earlier argument that quiet disclosure is similar to playing a Russian roulette. We have already established that the possibility of the IRS discovery of prior non-compliance has become increasingly likely under FATCA. We have also determined that willful failure to file an FBAR under the quiet disclosure strategy may lead to the imposition of willful civil and, possibly, criminal penalties. Finally, we also considered that a third-party disclosure (most likely, a bank that discloses under FATCA or the Program) is likely to prevent the taxpayer from entering the OVDP.

The effect of putting these three propositions together is obvious and explosive at the same time: engaging in a quiet disclosure policy may result in the discovery of prior FBAR non-compliance, such non-compliance is likely to be considered by the IRS as willful, and the taxpayer is likely to lose the safe harbor of the OVDP. The end result may be absolutely disastrous: FBAR willful civil penalties of up to $100,000 per account per year with potential FBAR criminal penalties (huge monetary penalties and incarceration).

The IRS has stated this openly in its FAQ instructions to the OVDP: “Taxpayers are strongly encouraged to come forward under the OVDP to make timely, accurate, and complete disclosures. Those taxpayers making ‘quiet’ disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years” (see FAQ #15).

Contact Sherayzen Law Office of Professional Help With Your Offshore Voluntary Disclosure of Foreign Assets and Foreign Income

If you have undisclosed foreign account or other assets, do not fall prey to the Russian Roulette quiet disclosure solution.

Rather, you should contact the international tax law firm of Sherayzen Law Office. We are a team of experienced tax professionals who have an expertise in the voluntary disclosure of offshore assets and income. We can help you.

Contact Us to Schedule a Confidential Consultation!

Choosing Your Offshore Voluntary Disclosure Lawyer

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Choosing the right Offshore Voluntary Disclosure Lawyer is a very important decision that may determine the fate of your entire offshore voluntary disclosure case. While making this choice, I recommend that you consider the following five main factors while choosing your Offshore Voluntary Disclosure Lawyer.

1. Areas of Practice of Your Offshore Voluntary Disclosure Lawyer

The first factor is to determine whether your Offshore Voluntary Disclosure lawyer really practices in this area of law. There are attorneys (especially in large and general practice law firms) out there who like to “dabble” in various areas of law but who really do not know international tax law in depth. You are well advised to stay away from such firms.

You should be looking for an attorney who has devoted the great majority of his practice to international tax law, particularly Offshore Voluntary Disclosure. Remember, Offshore Voluntary Disclosure involves not only the sophisticated analysis of the voluntary disclosure options of the foreign bank and financial accounts (i.e. issues associated with the Report of Foreign Bank and Financial Accounts – “FBAR”), but also the complex interaction of various other parts of international tax compliance requirements (such as PFICs, ownership of foreign business entities, ownership of Foreign trusts and so on).

Sherayzen Law Office is a law firm that specializes in international tax law and specifically in Offshore Voluntary Disclosures. Virtually our entire practice is devoted to helping clients throughout the world to comply with the complex requirements of U.S. international tax law, particularly voluntary disclosure of foreign income, offshore bank and financial accounts, foreign gifts and inheritance, and ownership of foreign business entities and trusts.

2. Experience of Your Offshore Voluntary Disclosure Lawyer

After making sure that he really practices in the area of Offshore Voluntary Disclosure, you should find out about the experience of your Offshore Voluntary Disclosure lawyer. What you should be looking for is the concentration of the experience as well as number of years that the attorney practices law (at least five years).

Do not be fooled by someone who says that he has thirty years of Offshore Voluntary Disclosure experience – this is a relatively new and quickly developing area of practice. the IRS implemented its first voluntary disclosure program (which was quite unknown at that time) in 2003. The first voluntary disclosure program of real importance was the 2009 OVDP and it served as a prototype for the highly successful 2011 OVDI and the later 2012 OVDP and 2014 OVDP (which closed in 2018).

Since 2005, Sherayzen Law Office has developed a unique expertise in the area of Offshore Voluntary Disclosure helping clients throughout the world, and it has practiced international tax law with the emphasis on offshore voluntary disclosures during the existence of all major IRS Voluntary Disclosure Programs.

3. Personal Attention of Your Offshore Voluntary Disclosure Lawyer to Your Voluntary Disclosure Case

The key point here is that, since offshore voluntary disclosures are highly fact-dependent, it is very important the experienced offshore voluntary disclosure lawyer that you wish to retain for your case is the one who will actually handle the entire case, not just the voluntary disclosure. Similarly, you want to make sure that your offshore voluntary disclosure lawyer is able to communicate with you personally with respect to the case.

Unfortunately, it is common practice for large law firms to divide up the work between the partner and the associates to the extent that the partner (usually an experienced attorney) contributes very little beyond getting you to sign the retainer agreement while less-experienced and even complete inexperienced associates do most of the work, potentially jeopardizing your entire voluntary disclosure.

Eugene Sherayzen, the founder and owner of Sherayzen Law Office, will personally handle your initial consultation and your entire case. Of course, parts of the case will be given to associates, accountants and staff members; however, Mr. Sherayzen invests a substantial amount of his time in training and supervision of all members of Sherayzen Law Office, making sure that the high quality of our firm’s work is maintained while certain cost benefits are passed through to the client. Moreover, Mr. Sherayzen is personally available for personal communication throughout the progress of your case.

4. Ethical Creativity of Your Offshore Voluntary Disclosure Lawyer

Offshore voluntary disclosures require consideration of interaction of various strategies and possibilities before the your disclosure options are finalized. This requires a healthy degree of ethical creativity that must be displayed by your offshore voluntary disclosure lawyer as early as the initial consultation.

If the offshore voluntary disclosure lawyer only proposes one option without considering any facts or without at least mentioning the other options and why they are rejected, then you may wish to get a second opinion. Similarly, if the attorney only concentrates on the OVDP penalty (program now closed) without discussion of the FBAR penalty structure, something may not be right.

Also, stay away from attorneys (and accountants) who propose unethical solutions which involve concealment of truth from the IRS or who propose easy solutions. Your voluntary disclosure is required to be truthful and complete; anything short of this standard may get you in deep troubles with the IRS and result in high civil and even criminal penalties.

Sherayzen Law Office follows a very high standard for ethical creativity, making sure that the required disclosures are honestly made the IRS while implementing ethical creative solutions based on legitimate interpretations of the Internal Revenue Code and Treasury regulations. In the end, we strive to achieve the combination of the required transparency with the tax and penalty reductions permitted by the Code.

5. Trust in Your Offshore Voluntary Disclosure Lawyer

This fifth factor of “trust” is highly important. If, after your initial consultation, you have a feeling of distrust and suspicion of the voluntary disclosure lawyer or his tactics, my suggestion is to try another attorney.

The stakes in the offshore voluntary disclosure can be very high and the information involved can be very sensitive. In such situations, at least some feeling of trust in the abilities and honesty of your Offshore Voluntary Disclosure Lawyer is crucial to the success of your case.

Contact Sherayzen Law Office to Retain The Right Offshore Voluntary Disclosure Lawyer for Your Case

If you are thinking about doing an Offshore Voluntary Disclosure with respect to your foreign assets and foreign income, contact Sherayzen Law Office for experienced professional help.

Over the years, Mr. Eugene Sherayzen, an experienced Offshore Voluntary Disclosure Lawyer has developed a unique expertise in the Offshore Voluntary Disclosure which allows Sherayzen Law Office to successfully help clients throughout the United States and the world. We offer a comprehensive approach which produces realistic voluntary disclosure options assessment on which you can rely. Then, once the voluntary disclosure option is chosen, we will implement the necessary ethical strategies (including drafting of legal documents and completing the necessary tax forms) and rigorously defend your position against the IRS.

Contact Us to schedule a Confidential Consultation now.

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

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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 possible.

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. accountholders (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 – program is now closed), 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.