BCGE FATCA Letter

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In a previous article, I started the discussion of various FATCA letters issued by banks around the world by concentrating on the HSBC FATCA letter. In this article, I would like to shift focus to a different part of the world and discuss the Swiss format with BCGE FATCA Letter.

BCGE FATCA Letter: General Format

BCGE (Banque Cantonale de Geneve) is determined to comply with FATCA. For this purpose, it developed its own format of a FATCA letter which closely follows the format adopted by most Swiss banks.

BCGE FATCA Letter follows what I call “comprehensive format” (as opposed to the “reference format” followed by HSBC). This means that BCGE FATCA Letter contains all of the main questions within the body of the letter and references only supplementary US forms (like W8BEN and W9). Thus, BCGE FATCA Letter allows BCGE to collect all of the information necessary for its own FATCA compliance in one place and without the need to create any other specialized forms.

It should be noted that the description of the format so far concentrated on the most common BCGE FATCA Letter for individuals, but there are variations in the form for trusts and corporations. Furthermore, there is a variation for the form for certain other circumstances. Since most US account holders who receive a BCGE FATCA are individuals, I will concentrate on the most common format only.

Let’s review each part of the common BCGE FATCA Letter.

BCGE FATCA Letter: Personal Information

The BCGE FATCA Letter commences with the confirmation of the identity and personal information (including place of residence) of the account holder. This section also commences the examination of the account holder’s US tax status by requiring the account holder to list all of his nationalities and the country of birth.

BCGE FATCA Letter: “Per Se” US Status

This is the most critical part of BCGE FATCA Letter because it focuses on the main designations of US person. In particular, this part of BCGE FATCA Letter asks whether the account holder has US national, is a US tax resident (which is asked in two different ways which mean the same thing – lawful permanent resident and the “green card” test), and whether the substantial presence test is satisfied. Definition for the later is provided in a footnote.

If there is at least one affirmative answer to these first four questions, BCGE will automatically classify the account holder as a US person subject to FATCA reporting. Once this determination is made, BCGE FATCA Letter requires the account holder to submit Form W-9 and a special BCGE Form 6387 “Consent to the disclosure of data according to FATCA”. Failure to complete Form 6387 may result in the BCGE designation of the account under FATCA as belonging to a “recalcitrant account holder”.

Please, note that once a status of US person is established, BCGE is very likely to close any securities accounts of a US account holder.

BCGE FATCA Letter Questions 1.5-1.8 on Potential US Status

If the account holder negatively answered the first four questions, the next part of the BCGE FATCA Letter asks a series of questions to see if the account holder if a US person in some other way. Most of these questions also require a submission of Form W-8BEN (with a non-US passport) or W-9.

BCGE FATCA Letter usually contains the following questions. First, whether the account holder was born in the USA or in a US territory (a definition is provided for this term). If the answer is “yes”, but the account holder believes that he is still not a US person, then he must submit Form W-8BEN, a non-US passport or a similar document, and a copy of the certificate of loss of US nationality. If the certificate cannot be produced, BCGE FATCA Letter automatically classifies the account holder as a US person and requires him to submit Form W-9 and a Consent to the disclosure of data under FATCA.

Second, BCGE FATCA Letter asks whether the account holder is a US taxpayer for any other reason – this a “catch all” question to make sure that BCGE does not miss a potential FATCA requirement. BCGE FATCA Letter lists a number of possibilities of how one becomes a US person : joint tax status with a US spouse, in the process of renouncing US nationality or green card, effectively connected income and owner of a US property. Again, supporting documentation or Form W-9 with the Disclosure Consent under FATCA are required.

Finally, BCGE FATCA Letter addresses the remaining potential for the account holder to be a US taxpayer such as US mailing address, care-of address, postbox, and fixed or mobile telephone number. If the account holder has any of these items, then BCGE FATCA Letter asks him to provide Form W-8BEN with a non-US passport (or similar documentation).

BCGE FATCA letter: Confirmation of Beneficial Ownership Status

By signing BCGE FATCA Letter, the account holder affirms that he is the beneficial owner of the bank account.

BCGE FATCA Letter: Treaty Relief Considerations

If it is established that the account holder is NOT a US person, BCGE FATCA Letter contains a fairly unique aspect – discussion of the possibility of claiming a favorable tax status with respect to investments into US Securities. Most other banks usually discuss this important issue in a separate letter, but BCGE FATCA Letter actually incorporates this issue within its body. Form W-8BEN is required to proceed.

BCGE FATCA Letter: Notice and Reimbursement Requirements Imposed on Account Holder

Finally, a BCGE FATCA Letter usually contains another interesting topic – the shift of risk to the account holder through imposition of notice requirements. Since this is a tactic which is adopted increasingly by foreign banks, it is useful to explore this requirement with specificity.

BCGE FATCA Letter states that, by signing the Letter, the account holder “undertakes to inform the Bank of any changes in circumstances resulting in a change of tax status, as the one indicated below and transmit the necessary documents or forms within 30 days after the change in circumstances.” BCGE FATCA Letter sets forth three such changes: change of residence, change of nationality and amendment of the account holder’s tax status (such as receipt of green card, substantial presence in the United States, et cetera).

BCGE FATCA Letter goes on to state that if the declarations made by the account holder in the Letter become invalid for some reason (such as belated discovery of U.S. status), the account holder must transmit to BCGE a new declaration of status with a Form W-9 and FATCA waiver.

The key phrase, however, is with respect to what happens if the information submitted by the account holder within the BCGE FATCA Letter turns out to be incorrect or incomplete. In such a case, the account holder “undertakes to indemnify the Bank for all damages it may suffer” as a result of relying on the incorrect declarations made in the BCGE FATCA Letter. It is unclear whether failure to comply with the Notice requirement is equally subject to this reimbursement requirements, but it seems to be the case.

Thus, it appears that BCGE FATCA Letter decisively shifts all risk of an incorrect declaration (even if non-willful due to belated discovery) from BCGE to the account holder. This is why it is important for the account holder’s attorney to carefully review this document and negotiate the necessary changes.

Contact Sherayzen Law Office for Help With FATCA Compliance

If you received a FATCA letter regarding an undisclosed personal or business account, contact Sherayzen Law Office for professional help. Our team of international experts will thoroughly review your case, analyze your current FBAR and FATCA exposure, recommend the proper voluntary disclosure plan and help you implement it (including preparation of all necessary legal documents and tax forms).

Contact Us to Schedule Your Confidential Consultation Now!

IRS Loses Two Offshore Tax Cases: Weil & Baravarian

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Last month, a federal jury in Fort Lauderdale, Florida acquitted Raoul Weil, a former top UBS Swiss banking executive, of tax evasion charges. Weil was indicted in 2008 under 18 U.S.C. § 371 (“Conspiracy to commit offense or to defraud United States”) and it was alleged that he helped nearly 17,000 wealthy US persons hide $20 Billion in Swiss bank accounts from the IRS. Weil had been extradited to the US to stand trial after being arrested by Interpol while vacationing in Italy in 2013. He would have faced up to five years in prison and a $250,000 fine, if found guilty. Weil did not testify in the case.

From 2002 through 2007, Weil was head of Swiss Bank’s wealth management business, which included US cross-border business and other businesses. In July of 2007, he became the CEO a division that oversaw the United States cross-border business and world-wide private banking. The verdict for the trial (which began on October 14), was quickly reached in less than an hour and a half of deliberation. According to a news report, Weil’s attorney told the jury that Weil was not culpable because, “There’s no evidence in this case that Mr. Weil knew and much less participated in activities by low-level bankers who were violating the bank’s own policies.” In response, a former DOJ tax division assistant attorney general, Nathan Hochman, was quoted after the verdict stating, “The verdict shows you the difficulty of going after senior management who can at times blame the bank’s customers and lower-level employees for the bank’s mistakes.” Prosecutors also failed to show that “a single overall conspiracy” existed under the law.

Weil was the highest-ranking foreign banker to be charged by the US during its lengthy probe of offshore tax evasion cases. The failure by the IRS and DOJ to obtain a conviction in this case represents a significant setback as they have been very successful in prosecuting such cases (and UBS itself had previously paid a $780 million fine in 2009 and admitted to assisting clients evade US taxes in exchange for non-prosecution).

The jury verdict in Weil’s case comes on the heels of another case in which a retired senior vice president at the Los Angeles branch of a bank headquartered in Tel Aviv, Israel Mizrahi Tefahot Bank Ltd., Shokrollah Baravarian, was acquitted in a federal court of charges of conspiring to defraud the U.S. government and of helping clients prepare false tax returns. Baravarian was alleged to have conspired to conceal the existence of undeclared offshore accounts owned and controlled by U.S. customers by opening them under pseudonyms, code names and the names of nominee entities set up in the British Virgin Islands and the island of Nevis. Like Weil, he also would have faced a potential maximum prison term of five years and a maximum fine of $250,000, if convicted.

Contact Sherayzen Law Office for Help with Your Offshore-Related US Tax Compliance Issues

As can be seen from the two acquittals highlighted above, legal challenges to the IRS and DOJ in offshore tax cases can be successful. Certain US persons who reported foreign accounts through the OVDP may also find that they wish to challenge their FBAR determinations in court. If you have any questions regarding OVDP-related litigation or compliance, please contact our experienced tax practice at Sherayzen Law Office, Ltd.

2015 Inflation Adjustments to Tax Benefits

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The IRS recently announced annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2014-61 provides details about these 2015 inflation adjustments. In this writing, I would like to highlight main 2015 inflation adjustments.

1. 2015 inflation adjustments for income tax brackets. The tax rate of 39.6 percent affects singles whose income exceeds $413,200 ($464,850 for married taxpayers filing a joint return), up from $406,750 and $457,600, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.

2. 2015 inflation adjustments for Standard Deduction. The standard deduction rises to $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively, for tax year 2014. The standard deduction for heads of household rises to $9,250, up from $9,100.

3. 2015 inflation adjustments for Itemized Deduction Limitation. The limitation for itemized deductions to be claimed on tax year 2015 returns of individuals begins with incomes of $258,250 or more ($309,900 for married couples filing jointly).

4. 2015 inflation adjustments for Personal Exemption Amounts. The personal exemption for tax year 2015 rises to $4,000, up from the 2014 exemption of $3,950. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). It phases out completely at $380,750 ($432,400 for married couples filing jointly.)

5. 2015 inflation adjustments for Alternative Minimum Tax (AMT): AMT exemption amount for tax year 2015 is $53,600 ($83,400, for married couples filing jointly). The 2014 exemption amount was $52,800 ($82,100 for married couples filing jointly).

6. 2015 inflation adjustments for Earned Income Credit (EIC) amount. The maximum EIC amount is $6,242 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,143 for tax year 2014. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.

7. 2015 inflation adjustments for Estate Basic Exclusion Amounts. Estates of decedents who die during 2015 have a basic exclusion amount of $5,430,000, up from a total of $5,340,000 for estates of decedents who died in 2014.

8. 2015 inflation adjustments for Foreign Spouse Gifts. The exclusion from tax on a gift to a spouse who is not a U.S. citizen is $147,000, up from $145,000 for 2014.

9. 2015 inflation adjustments for Foreign Earned Income Exclusion (FEIE). The 2015 FEIE breaks the six-figure mark, rising to $100,800, up from $99,200 for 2014.

10. 2015 inflation adjustments for Annual Gift Exclusion Amount. The annual exclusion for gifts remains at $14,000 for 2015.

IRS Form 1041 Penalties and Interest

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Form 1041 (“U.S. Income Tax Return for Estates and Trusts”) is used by a fiduciary of a domestic decedent’s estate, trust, or bankruptcy estate for a number of important reporting reasons. Interest may be charged and various penalties may be assessed for failure to meet reporting requirements and to pay necessary taxes.

In this article, we will detail the various penalties that may be imposed, and interest that may be charged, concerning Form 1041. This article is not intended to convey tax or legal advice. If you have any questions about filing Form 1041, or any other tax or legal questions, please contact Mr. Eugene Sherayzen, an experienced tax attorney at Sherayzen Law Office, Ltd.

Form 1041 Interest

Interest will be charged on any taxes that were not paid by the due date of Form 1041, regardless of whether an extension of time to file was granted. In addition, interest will also be charged on any Form 1041 penalties imposed resulting from failure to file, negligence, fraud, substantial valuation misstatements, substantial understatements of tax, and reportable transaction understatements.

Interest is charged on the penalty from the date the Form 1041 is due, including any extensions, and is charged at a rate determined under Internal Revenue Code Section 6621.

Form 1041 Late Filing Penalty

A penalty may be assessed for 5% of the tax due for each month (or part of a month) for which Form 1041 is not filed, up to a maximum of 25% of the tax due (and 15% for each month, or part of a month, up to a maximum of 75% if the failure to file is fraudulent). If the late Form 1041 is more than 60 days late, the minimum penalty to be assessed will be the smaller of $135 or the tax due. In certain cases, penalties may not be imposed if a taxpayer can prove the failure to file Form 1041 was due to reasonable cause.

Form 1041 Late Payment of Tax Penalty

A penalty for not paying tax owed when due may apply to any unpaid tax as calculated on Form 1041; the late payment Form 1041 penalty is an addition to interest charges on late payments. In general, the late payment penalty is 0.5% of the unpaid amount for each month (or part of a month), up to a maximum penalty is 25% of the unpaid amount.

Penalty for Failure to Provide (Form 1040) K-1 Timely

Because Schedule K-1 (Form 1041) must be provided on or before the day Form 1041 is required to be filed to each beneficiary who receives a distribution of property or an allocation of an item of the estate, a penalty for the failure to provide this information timely if Form K-1 if filed late. This penalty applies to both a failure to provide Schedule K-1 to a beneficiary when due and for each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information).

The standard penalty for failure to provide Form 1041 K-1 timely is $100. The maximum penalty up to $1.5 million for all such failures during a calendar year may be imposed. Furthermore, if the requirement to report information was intentionally disregarded, each $100 penalty will be increased to $250 or, if greater, 10% of the aggregate amount of items that were required to be reported; in this case, the $1.5 million maximum will not apply.

However, if a fiduciary can demonstrate that the failure to provide information timely was due to reasonable cause and not due to willful neglect, this penalty may not be imposed.

Underpaid Estimated Tax Penalty

In situations in which a fiduciary underpaid estimated tax, Form 2210 (“Underpayment of Estimated Tax by Individuals, Estates, and Trusts”) will need to be utilized to figure any penalty; this amount is then input onto line 26 of Form 1041.

Trust Fund Recovery Penalty

A Trust Fund Recovery Penalty may be imposed if certain excise, income, social security, and Medicare taxes that were required to collected or withheld, were not, or if such taxes were not paid. This penalty may apply to all persons responsible for collecting, accounting for, or paying over these taxes, and who acted willfully in not doing so. The Trust Fund Recovery Penalty will be equal to the unpaid trust fund tax.

Other Form 1041 Penalties

In addition, other standard penalties may apply to Form 1041, such as negligence and substantial understatement of tax penalties, among others. The IRS defines negligence to mean “[A] failure to make a reasonable attempt to comply with the tax law or to exercise ordinary and reasonable care in preparing a return. Negligence also includes failure to keep adequate books and records.” A substantial understatement of tax will occur when an understatement is more than the greater of 10% of the correct tax or $5,000, subject to certain exceptions.

Contact Sherayzen Law Office for Help With Trust Tax Compliance Issues

Trust tax compliance may involve complex issues, and the penalties for failing to meet Form 1041 compliance requirements can potentially be significant. You are advised to seek the advice of an attorney practicing in this area. If you have any questions, please contact Sherayzen Law Office, Ltd. for all of your tax and legal needs.

Who Must File IRS Form 1042

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Form 1042 (“Annual Withholding Tax Return for U.S. Source Income of Foreign Persons”) serves a number of important reporting purposes. In general, it is used to report the tax withheld under chapter 3 of the Internal Revenue Code (“IRC”) on certain income of foreign persons (such as nonresident aliens, foreign partnerships, foreign corporations, foreign estates, and foreign trusts), as well as to report the tax withheld under chapter 4 of the IRC on payments subject to tax withholding. It also utilized to report tax withheld pursuant to IRC Section 5000C (“Imposition of tax on certain foreign procurement”), and reportable payments from Form 1042-S under chapters 3 or 4.

In this article, we will cover who is responsible for filing Form 1042. US individuals involved with cross-border businesses or living overseas should be aware of this form as they may be subject to the form’s filing requirements for a variety of common reasons, without even knowing it. For instance, US-source alimony paid to a nonresident alien former spouse may be reportable by a withholding agent on Form 1042 (in addition to 1042-S), even if the entire amount is exempt under a tax treaty.

This article provides general information and is not intended to convey tax or legal advice. Please contact Mr. Eugene Sherayzen, an experienced tax attorney at Sherayzen Law Office, Ltd. if you have any questions about filing this form, or any other US-international tax questions.

Who is Responsible for Filing Form 1042?

As noted by the IRS, unless an exception applies, “every withholding agent or intermediary who receives, controls, has custody of, disposes of, or pays a withholdable payment, including any fixed or determinable annual or periodical income, must file an annual return for the preceding calendar year” on Form 1042. The IRS defines “withholding agent” to mean any person who is required to withhold tax. This definition is expansive and can include, in general, any individual, trust, estate, partnership, corporation, nominee, government agency, association, or tax-exempt foundation (both domestic and foreign) that is required to withhold tax. Withholding agents are personally liable for any tax required to be withheld, as well as interest and applicable penalties.

An “intermediary” means, “a person who acts as a custodian, broker, nominee, or otherwise as an agent for another person, regardless of whether that other person is the beneficial owner of the amount paid, a flow-through entity, or another intermediary.”

When Must Form 1042 Be Filed?

Form 1042 must be filed in a number of different circumstances. As stated by the IRS, an individual or entity must file the form if, “you are required to file or otherwise file Form(s) 1042-S for purposes of either chapter 3 or 4 (whether or not any tax was withheld or was required to be withheld to the extent reporting is required)…; You file Form(s) 1042-S to report to a recipient tax withheld by your withholding agent; You pay gross investment income to foreign private foundations that are subject to tax under section 4948(a); You pay any foreign person specified federal procurement payments that are subject to withholding under section 5000C; You are a qualified intermediary (QI), withholding foreign partnership (WP), withholding foreign trust (WT), participating foreign financial institution (FFI), or reporting Model 1 FFI making a claim for a collective refund under your respective agreement with the IRS.” Note, that the FFI classification may also require other extensive reporting under FATCA.

2014 Form 1042: Due Date and Place of Filing

The 2014 Form 1042 must be filed by March 16, 2015, to the IRS’ Ogden (UT) Service Center, and an extension of time to file may be granted by submitting Form 7004, (“Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns”).

Contact Sherayzen Law Office for Help With International Tax Compliance

US-International tax reporting and planning can involve many complex areas, and you are advised to seek the advice of attorneys practicing in this area. If you have any questions, please contact Sherayzen Law Office, Ltd. for all of your tax and legal needs.