IRS Cracks Down on Sovereign Debit Cards linked to Offshore Accounts

/0 Comments/in , /by

On January 25, 2017, the federal court in Montana authorized the IRS to serve John Doe Summons on Michael Berg of Bozeman, Montana, seeking information about US taxpayers with offshore accounts established by Sovereign Management & Legal LTD (“Sovereign”), a Panamanian company. In particular, the IRS is interested in US taxpayers who use debit cards linked to these offshore accounts (“Sovereign Debit Cards”). Let’s explore in more detail why the IRS is pursuing John Doe summons with respect to Sovereign Debit Cards.

Sovereign Debit Cards Used to Access Secret Offshore Accounts Without Identifying the Owner of the Accounts

First of all, it is important to point out that Sovereign is already on the OVDP (now closed) list of “facilitators”, which means that any US taxpayer who owns Sovereign offshore accounts and enters the OVDP will be subject to a 50% Offshore Penalty. Additionally, it means that the IRS has long been focusing on this company and what it is doing to promote US tax evasion.

It seems that there is a particular scheme linked to Sovereign debit cards that bothers the IRS. In its press release, the IRS and the DOJ stated that Sovereign advertised various products that allow US taxpayers to hide their offshore assets. In particular, the IRS emphasized one “package” where a corporation owned by another entity (including a fake charitable foundation) is officially governed by nominee officers provided by Sovereign. Then, Sovereign would open bank accounts for these entities and provide Sovereign debit cards (issued in the name of a nominee) to the taxpayer. By using Sovereign debit cards, taxpayers were able to access their offshore funds without revealing their identities.

In essence, the main issue here is the use of pre-paid debit cards for tax evasion purposes.

The Information that the IRS Seeks Regarding Sovereign Debit Cards

The John Doe summons issued by the IRS seek the records of US taxpayers who received Sovereign debit cards, specifically “Sovereign Gold Cards”. The IRS wishes to obtain the records for eleven years – 2005 through 2016.

This is the Second Time the IRS Seeks Regarding Sovereign Debit Cards

The current summons represent just a part of the case against the Sovereign . The IRS and the DOJ already previously obtained a similar order from the U.S. District Court for the Southern District of New York, which authorized the issuance of eight separate John Doe summonses on bank and other entities for information related to Sovereign and its US customers. The evidence submitted in the request to issue the current Montana John Doe summons was built in part on the information provided in response to the earlier summons.

Impact of Sovereign Debit Cards John Doe Summons on US Taxpayers

The new Sovereign Debit Cards John Doe Summons should be of grave concern to US taxpayers who own Sovereign Debit Cards as well as other noncompliant US taxpayers. Let’s discuss two most important aspects of these John Doe Summons with respect to noncompliant US taxpayers.

First of all, all noncompliant US taxpayers related to Sovereign in one way or another are in grave risk of the IRS detection. As long as their names appear in Sovereign’s internal records, these taxpayers are likely to be discovered and prosecuted by the IRS.

Second, what is especially disconcerting is the time frame for the new John Doe summons – years 2005 through 2016. The IRS is seeking records of even pre-UBS case tax noncompliance. This trend to going back that far should worry not only the US taxpayers with Sovereign debit cards, but also any US taxpayers who did quiet disclosure or just closed their accounts a long time ago and believe that they are safe from the IRS prosecution because of the passage of time. The willingness of the IRS to go back that far shows that all of these taxpayers are at risk.

Contact Sherayzen Law Office for Help with Your Voluntary Disclosure Concerning Sovereign Debit Cards and/or Any Other Undisclosed Foreign Accounts

As the IRS correctly pointed out, “the time to come forward and come into compliance is running short, and those who continue to violate U.S. tax and reporting laws will pay a heavy price.” The “heavy price” might be the criminal tax evasion penalties and willful and criminal FBAR penalties – a situation where a taxpayer might owe in penalties more than he ever had on his offshore accounts and he will also be put in prison for potentially as many as ten years.

This is why it is very important for noncompliant US taxpayers to contact Sherayzen Law Office to discuss their offshore voluntary disclosure options as soon as possible. The situation is particularly critical for US taxpayers with Sovereign debit cards.

We have successfully helped hundreds of US taxpayers avoid criminal penalties and achieve civil case resolutions with the IRS. We can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

Israeli IT Tax Breaks | Minnesota International Tax Lawyer and Attorney

/0 Comments/in , /by

Israel continues to solidify its leading positions in the IT market by using tax policy. On January 1, 2017, Amendment 73 to the Law for the Encouragement of Capital Investments of 1959 entered into force. The main goal of the Amendment is to clarify, extend and improve the Israeli tax breaks for IT companies operating in Israel. Let’s review some of the most important of these Israeli IT tax breaks.

Israeli IT Tax Breaks: Preferred Technological Taxable Income Tax Rates

Starting year 2017, Israel will have three levels of taxation of what is termed as “preferred technological taxable income” (PTTI) of certain companies, referred to as “preferred enterprises” (PE). The tax rates will be as follows: 12% default rate, $7.5% development area A (special Israeli designation for certain areas) and just 6% in the case of a special preferred technological enterprise (SPTE). All of these rates compare favorably to the standard business tax rate in Israel of 24% (which was also lowered as of January 1, 2017 from 25%).

There is an important exception – R&D centers will not be entitled to a reduced corporate tax rate if the controlling shareholders or the beneficiaries are Israeli residents. Control here can be direct or indirect and it is defined as an entitlement to 25% or more of the income or profits of the R&D center.

Israeli IT Tax Breaks: IT Company Owners Dividend Tax Rates

The owners of IT companies get another tax break in the form of dividend withholding rates. Generally, the tax withholding rate for dividends paid to an owner of an IT company will be 20% (subject to any applicable tax treaty). However, the rate goes down to a mere 4% if the dividend is distributed to at least a 90% foreign resident corporate shareholder.

Again, these rate are below the general tax withholding rate of 30-33% for dividends paid out to shareholders who own at least 10% of the company.

Israeli IT Tax Breaks: Certain Capital Gains

The Israeli IT tax breaks also expand to capital gains in certain limited situations. Israeli IT companies that sell IP to a related foreign company will qualify for a reduced 6% capital gains tax rate, but only if the Israeli company developed or acquired the IP from a foreign company after January 1, 2017. Such sales are subject to the approval of the National Authority for Technological Innovation.

A Combined Effort of US and Israeli Lawyers Needed to Properly Plan A US Company’s Expansion to Israel

All of the tax law changes that I mentioned above are described here in a very general manner. There are very specific qualifications that need to be satisfied by a company in order to qualify for the Israeli IT Tax Breaks. This is why a US company will need to contact a specialized Israeli tax attorney to properly plan the expansion of its IT business to Israel.

At the same time, however, the work of the Israeli tax attorney should be coordinated with proper US tax planning, because US companies are taxed on their worldwide income and may potentially even be taxed on the income of their foreign subsidiaries. Therefore, the tax planning efforts of an Israeli tax attorney should be combined with those of a US tax attorney in order to produce a tax plan that will function properly in both jurisdictions at the same time.

Contact Sherayzen Law Office for Professional Help With Your Business Tax Planning

If you wish to expand your business overseas, you need to contact Sherayzen Law Office for professional US business tax planning. Additionally, we can also help you with your US annual compliance with respect to your foreign assets and foreign income.

Contact Us Today to Schedule Your Consultation!

University Professor Sentenced to Prison with $100 Million FBAR Penalty

/0 Comments/in , /by

On February 10, 2017, the IRS scored yet another victory in its fight against secret offshore accounts with the imposition of a $100 Million FBAR Penalty. Mr. Dan Horsky, a 71-year old retired university professor (he used to teach at a business school), was a spectacularly successful investor and a very unsuccessful tax evader. After making a fortune, he decided to conceal his earnings through secret offshore accounts in Switzerland. Now, not only will this university professor pay an enormous $100 Million FBAR penalty, but he will also go to prison.

Facts of the Case: From University Professor to a $100 Million FBAR Penalty

Let’s first explore how did a simple professor ended up paying a $100 Million FBAR penalty.

According to court documents and statements made during the sentencing hearing, Mr. Horsky is a citizen of the United States, the United Kingdom and Israel. For over 30 years, he worked as a professor of business administration at a university located in New York. Around 1995, this university professor invested in numerous start-up companies. All of them but one failed; however, the one that succeeded (“Company A”) was spectacularly profitable.

In 2000, Mr. Horsky consolidated all of his investments into a nominee account in the name of a shell entity, Horsky Holdings. The account was opened at a Swiss bank in Zurich in order to conceal his financial transactions and accounts from the IRS and the US Treasury Department (the “DOJ”).

In 2008, Mr. Horsky received approximately $80 million in proceeds from selling Company A’s stock. However, he filed a fraudulent 2008 tax return, under-reporting his income by more than $40 million and disclosing only approximately $7 million of his gain from the sale. Then, the Swiss Bank opened multiple accounts for the university professor to assist him in concealing his assets. The university professor decided to trick the IRS and opened one small account for which Horsky admitted that he was a US citizen and another much larger account for which he claimed he was an Israeli citizen and resident.

As a university professor who loved business, Mr. Horsky could not stay away from temptation of further investments. He re-invested some of his gains from selling Company A’s stock into Company B’s stocks. Again, the university professor was enormously successful – by 2015, his secret offshore holdings exceeded $220 million.

In 2012, after learning about the IRS efforts to fight offshore tax evasion, Mr. Horsky engaged in a new scheme. He arranged for an individual (“Person A”) to take nominal control over his accounts at the Swiss Bank because the bank was closing accounts controlled by US persons. Interestingly, the Swiss Bank went so far as to help Person A relinquish his US citizenship. In 2014, Person A filed a false Form 8854 (Initial Annual Expatriation Statement) with the IRS that failed to disclose his net worth on the date of expatriation, failed to disclose his ownership of foreign assets, and falsely certified under penalties of perjury that he was in compliance with his tax obligations for the five preceding tax years.

By 2015, however, the IRS already conducted an investigation (probably triggered by information received as a result of the Swiss Bank Program) and identified Mr. Horsky’s tax evasion scheme. The IRS special agents actually raided Mr. Horsky’s home and confronted him about his concealment of his foreign financial accounts.

The IRS estimated that, during this entire 15-year old tax evasion scheme, Mr. Horsky evaded more than $18 million in income and gift taxes.

Punishment: $100 Million FBAR Penalty, Imprisonment and Other Penalties

Mr. Horsky faced a large array of penalties for filing fraudulent federal income tax returns, failure to disclosure his beneficial interest in and control over his foreign financial accounts on FBARs through the year 2011, and filing of fraudulent 2012 and 2013 FBARs.

The court sentenced Mr. Horsky to seven months in prison, one year of supervised release and a $250,000 fine. As part of his plea agreement, Mr. Horsky also paid over $13,000,000 in taxes owed to the IRS and a $100,000,000 FBAR penalty.

Lessons to be Learned from this $100 Million FBAR Penalty Case

So, how did this become a $100 Million FBAR Penalty Case? What qualified this case for criminal prosecution?

First, the very sophisticated nature of the tax evasion scheme made it very easy for the IRS to pursue criminal penalties in this case. Mr. Horsky went from one tax evasion trick to another, believing that he could avoid IRS detection. Using a shell corporation to hide his identity was definitely a big factor here. However, other strategies (like the use of a nominee who gave up his US citizenship) employed by him also made it an easy target for criminal prosecution.

Second, the amounts involved. With over $200 million in assets, Mr. Horsky should have known that he would be a valuable target for the IRS criminal prosecution.

Third, income evasion was done here on a grand scale. Not only did Mr. Horsky conceal the income from his accounts, but he also tried to evade the taxation of his very large capital gains. Every time that there is a combination of FBAR violation with a large-scale income tax violation, the chances of a criminal prosecution increase exponentially.

Finally, the willfulness of Mr. Horsky’s entire behavior was particularly made evident with the filing of fraudulent tax returns. A partial disclosure is one of the most dangerous patterns of tax behavior, because it discloses the knowledge of a tax obligation on the part of the taxpayer and points to the willfulness of the violation with respect to the noncompliant part of the obligation.

In fact, looking at this case, one can say that Mr. Horsky’s $100 Million FBAR penalty was definitely not the worse outcome. It is probably thanks to the skillful work of his criminal tax attorneys that the worst was avoided.

There is one more lesson that needs to be learned from this case. It appears that Mr. Horsky had plenty of opportunities to enter into any of the IRS offshore voluntary disclosure programs to avoid his $100 Million FBAR penalty and a prison sentence. He could have entered the 2009 OVDP, 2011 OVDI, 2012 OVDP and probably even 2014 OVDP.

If he would have entered into any of these programs, Mr. Horsky could have avoided the $100 Million FBAR penalty, saved tens of millions of dollars in potential penalties and eliminated any serious chance of a criminal prosecution.

Contact Sherayzen Law Office for Professional Help With the Voluntary Disclosure of Your Foreign Accounts

If you have undisclosed foreign accounts outside of the United States, you are in grave danger of IRS detection and the imposition of draconian FBAR penalties, including incarceration. This is why you need to contact Sherayzen Law Office as soon as possible to explore your voluntary disclosure options.

Sherayzen Law Office is an international tax law firm that specializes in offshore voluntary disclosures. We have successfully helped hundreds of US taxpayers to avoid or reduce draconian FBAR penalties and bring their tax affairs into full compliance with US tax laws. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Importance of Outbound Business Tax Planning | International Tax Attorney

/0 Comments/in , /by

Outbound business tax planning should form part of every outbound business transaction, whether it is in technology transfers, export of goods or an investment overseas. In this article, I would like to discuss the main goal of the outbound business tax planning and identify the overall “global” (i.e. looking at the entire genre of outbound transactions) strategies which are utilized to achieve this goal.

The Main Purpose of the Outbound Business Tax Planning

The main goal of the outbound business tax planning is not difficult to discern – legal reduction of tax burden and, thereby, maximization of profits. What is important to understand is that the outbound business tax planning seeks to optimize the after-tax financial return from a transaction by reducing the taxes paid. It is not concerned so much with the pre-tax business details of the outbound transaction (although, these details may play a very important role in tax planning, but as a strategy and not a goal).

In other words, instead of treating taxes as just another cost of doing business, a business can significantly increase its real return from an outbound transaction through careful business tax planning.

Three Global Strategies to Achieve the Main Goal of the Outbound Business Tax Planning

How can the goal of after-tax financial return be achieved? There are three main strategies that can be utilized by an international tax attorney. The first strategy is to avoid the existence of any taxing jurisdiction in the destination country (i.e. the foreign country that is the object of the outbound business transaction). In other words, the transaction is structured in such a way as to avoid (or, at least, significantly reduce) the taxation of profits overseas.

The second strategy is to postpone for a significant period of time the US taxation of foreign profits until these profits are repatriated into the United States. Since US businesses are taxed on their worldwide income, the focus of this strategy is on deferral of US income tax, rather than its complete avoidance. The economic benefits of such deferral can be very significant, because the profits can be either reinvested tax-free, accumulate interest (also tax-free) or serve as a collateral for borrowing in the United States.

What happens if the income taxation in the destination country cannot be avoided? Does the outbound business tax planning have anything to offer in this case?

The answer is yes – the prevention of significant double-taxation of foreign income in the United States. This is the third main strategy of the outbound business tax planning. A prominent example of such strategy is the utilization of foreign tax credit to offset US tax liability.

Contact Sherayzen Law Office for Help with Your Outbound Business Tax Planning

If you are planning to expand your business overseas, contact Sherayzen Law Office for professional help. We will thoroughly analyze your planned business transaction, create a tax plan for you and implement it. Moreover, our firm will also provide you with the annual US tax compliance support with respect to US tax compliance requirements that may arise as a result of the tax plan (such as Form 5471 or 8865 compliance).

Contact Us Today to Schedule Your Confidential Consultation!

2016 FBAR Currency Conversion Rates | FBAR Lawyer and Attorney

/0 Comments/in , /by

Using proper currency conversion rates is a critical part of preparing 2016 FBAR and 2016 Form 8938. The instructions to both forms require (in case of Form 8938, this is the default choice) US taxpayers to use the 2016 FBAR Currency Conversion Rates published by the Treasury Department. The 2016 FBAR Currency Conversion Rates also serve other purposes beyond the preparation of the 2016 FBAR and Form 8938.

The 2016 FBAR Currency Conversion Rates are the December 31, 2016 rates officially published by the U.S. Department of Treasury (they are called “Treasury’s Financial Management Service rates” or the “FMS rates”) and they are the proper conversion rates that must be used while preparing FBAR and Form 8938.

Due to this importance of 2016 FBAR Currency Conversion Rates to US taxpayers, international tax lawyers and international tax accountants, Sherayzen Law Office provides the table below with the official 2016 FBAR Currency Conversion Rates (keep in mind, you still need to refer to the official website for any updates).

Country Currency Foreign Currency to $1.00
Afghanistan Afghani 66.5000
Albania Lek 128.2500
Algeria Dinar 110.0180
Angola Kwanza 170.0000
Antigua-Barbuda East Caribbean Dollar 2.7000
Argentina Peso 15.9030
Armenia Dram 480.0000
Australia Dollar 1.3850
Austria Euro 0.9490
Azerbaijan New Manat 1.8400
Bahamas Dollar 1.0000
Bahrain Dinar 0.3770
Bangladesh Taka 79.0000
Barbados Dollar 2.0200
Belarus New Ruble  1.9590
Belarus Ruble  19585.0000
Belgium Euro  0.9490
Belize Dollar 2.0000
Benin CFA Franc  625.1400
Bermuda Dollar 1.0000
Bolivia Boliviano  6.8700
Bosnia-Hercegovina Marka  1.8560
Botswana Pula  10.6720
Brazil Real  3.2530
Brunei Dollar  1.4450
Bulgaria Lev  1.8560
Burkina Faso CFA Franc  625.1400
Burma-Myanmar Kyat  1365.0000
Burundi Franc  1650.0000
Cambodia (Khmer) Riel 4103.0000
Cameroon CFA Franc  621.7300
Canada Dollar  1.3460
Cape Verde Escudo  104.7280
Cayman Islands Dollar 0.8200
Central African Republic CFA Franc  621.7300
Chad CFA Franc  621.7300
Chile Peso  668.8000
China Renminbi  6.9420
Colombia Peso 3001.5000
Comoros Franc  462.6500
Congo CFA Franc  621.7300
Congo, Dem. Rep Congolese Franc  1210.0000
Costa Rica Colon  546.0000
Cote D’Ivoire CFA Franc  625.1400
Croatia Kuna  7.0500
Cuba Peso 1.0000
Cyprus Euro  0.9490
Czech Republic Koruna  25.0450
Denmark Krone  7.0540
Djibouti Franc  177.0000
Dominican Republic Peso  46.5900
Ecuador Dolares 1.0000
Egypt Pound  18.0000
El Salvador Dolares 1.0000
Equatorial Guinea CFA Franc  621.7300
Eritrea Nakfa  15.0000
Estonia Euro  0.9490
Ethiopia Birr  22.4000
Euro Zone Euro  0.9490
Fiji Dollar  2.0730
Finland Euro  0.9490
France Euro  0.9490
Gabon CFA Franc  621.7300
Gambia Dalasi  44.0000
Georgia Lari  2.6600
Germany FRG Euro  0.9490
Ghana Cedi  4.2200
Greece Euro  0.9490
Grenada East Carribean Dollar 2.7000
Guatemala Quetzal  7.5220
Guinea Franc  9225.0000
Guinea Bissau CFA Franc  625.1400
Guyana Dollar  205.0000
Haiti Gourde  66.4600
Honduras Lempira  23.4000
Hong Kong Dollar  7.7560
Hungary Forint  293.7500
Iceland Krona  112.8700
India Rupee  67.8000
Indonesia Rupiah  13380.0000
Iran Rial  32376.0000
Iraq Dinar  1166.0000
Ireland Euro  0.9490
Israel Shekel  3.8410
Italy Euro  0.9490
Jamaica Dollar  128.0000
Japan Yen  117.0300
Jerusalem Shekel  3.8410
Jordan Dinar 0.7080
Kazakhstan Tenge  333.3000
Kenya Shilling  102.4500
Korea Won  1203.2100
Kuwait Dinar  0.3050
Kyrgyzstan Som  69.3000
Laos Kip  8170.0000
Latvia Euro  0.9490
Lebanon Pound 1500.0000
Lesotho South African Rand  13.7070
Liberia Dollar  91.0000
Libya Dinar  1.4380
Lithuania Euro  0.9490
Luxembourg Euro  0.9490
Macao Mop 8.0000
Macedonia FYROM Denar  58.1200
Madagascar Aria  3350.5400
Malawi Kwacha  747.0000
Malaysia Ringgit  4.4850
Mali CFA Franc  625.1400
Malta Euro  0.9490
Marshall Islands Dollar 1.0000
Martinique Euro  0.9490
Mauritania Ouguiya  355.0000
Mauritius Rupee  35.8700
Mexico New Peso  20.6520
Micronesia Dollar 1.0000
Moldova Leu  19.9000
Mongolia Tugrik  2489.5300
Montenegro Euro  0.9490
Morocco Dirham  10.1540
Mozambique Metical  70.8000
Namibia Dollar  13.7070
Nepal Rupee  108.7000
Netherlands Euro  0.9490
Netherlands Antilles Guilder 1.7800
New Zealand Dollar  1.4370
Nicaragua Cordoba  29.0500
Niger CFA Franc  625.1400
Nigeria Naira 304.2000
Norway Krone 8.6210
Oman Rial 0.3850
Pakistan Rupee  104.3500
Palau Dollar 1.0000
Panama Balboa 1.0000
Papua New Guinea Kina  3.1010
Paraguay Guarani  5755.0000
Peru Nuevo Sol  3.3570
Philippines Peso  49.5910
Poland Zloty  4.1850
Portugal Euro  0.9490
Qatar Riyal 3.6410
Romania Leu  4.3050
Russia Ruble  61.0220
Rwanda Franc  815.0000
Sao Tome & Principe Dobras 23556.0240
Saudi Arabia Riyal 3.7500
Senegal CFA Franc 625.1400
Serbia Dinar  117.1400
Seychelles Rupee  13.2190
Sierra Leone Leone  7451.0000
Singapore Dollar  1.4450
Slovak Republic Euro  0.9490
Slovenia Euro  0.9490
Solomon Islands Dollar  7.9370
South Africa Rand  13.7070
South Sudan Pound  80.0000
Spain Euro  0.9490
Sri Lanka Rupee  149.6000
St Lucia East Caribbean Dollar 2.7000
Sudan Pound  7.1000
Suriname Guilder  7.4850
Swaziland Lilangeni  13.7070
Sweden Krona  9.0630
Switzerland Franc  1.0190
Syria Pound  515.0000
Taiwan Dollar  32.4010
Tajikistan Somoni 7.8000
Tanzania Shilling  2178.0000
Thailand Baht  35.7700
Timor-Leste Dili 1.0000
Togo CFA Franc 625.1400
Tonga Pa’anga  2.1530
Trinidad & Tobago Dollar  6.6900
Tunisia Dinar  2.3010
Turkey Lira  3.5220
Turkmenistan Manat 3.4910
Uganda Shilling  3607.0000
Ukraine Hryvnia  27.0000
United Arab Emirates Dirham 3.6720
United Kingdom Pound Sterling  0.8120
Uruguay New Peso  29.0700
Uzbekistan Som  3286.0000
Vanuatu Vatu  111.8000
Venezuela New Bolivar  673.8300
Vietnam Dong  22770.0000
Western Samoa Tala  2.4960
Yemen Rial  250.5000
Zambia Kwacha (New)  9.9150
Zambia Kwacha  5455.0000
Zimbabwe Dollar 1.0000

1. Lesotho’s loti is pegged to South African Rand 1:1 basis
2. Macao is also spelled Macau: currency is Macanese pataka
3. Macedonia: due to the conflict over name with Greece, the official name if FYROM – Former Yugoslav Republic of Macedonia.