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Surgeon Indicted for Secret Bank Accounts in Panama and Costa Rica

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Previously, I already discussed the high exposure of the US-owned undisclosed bank accounts in Panama and Costa Rica. Last week, the IRS gave a perfect example (thought with an unusual set of facts) of such exposure of bank accounts in Panama and Costa Rica. On May 23, 2014, the Justice Department and Internal Revenue Service (IRS) announced that a federal grand jury in Anchorage, Alaska, returned a superseding indictment charging Michael D. Brandner, an Anchorage physician specializing in plastic surgery, on three counts of tax evasion.

Facts of the Case

The unusual aspect of this case is that one of the major motivations for opening the accounts in Panama and Costa Rica was the divorce that Dr. Bradner was going through.

According to court documents, Dr. Brandner engaged in a scheme to hide and conceal millions of dollars of assets from the Alaska courts and from his wife of 28 years who was divorcing him. Shortly after the divorce was filed, Dr. Brandner left Alaska and drove to Central America after converting assets into five cashier’s checks worth over $3,000,000.

Then, in 2008, after the Alaska court ordered Dr. Bradner to give up the $1.26 million self-directed IRA, he moved all of that money to his Panama account. Later, he moved another $200,000 to Panama.

In 2011, Dr. Bradner’s tax advisor in Panama (who was an informant cooperating with the IRS) advised Dr. Bradner about the tax treaty signed by Panama in 2010 on the disclosure of foreign accounts. He was able to convince Dr. Bradner to create a foreign corporation which opened a bank account in the United States. This account was supposed to hold the funds from Central America to avoid their disclosure to the IRS, but the Department of Homeland Security seized the funds when Dr. Bradner attempted to wire-transfer them to his corporation’s U.S. account.

According to the superseding indictment, Dr. Brandner attempted to evade his taxes, including making false and misleading statement to IRS special agents and filing false tax returns for 2008, 2009 and 2010. In the three false returns, Dr. Brandner failed to report the existence of financial accounts in Panama and Costa Rica over which he had signature authority, and also failed to report foreign interest income of more than $9,000 for 2008, more than $150,000 for 2009, and more than $150,000 for 2010. The indictment also alleges that Dr. Brandner attempted to evade more than $600,000 in federal income taxes over the three years.

The last interesting fact of this case is that (in a secretly-taped conversation) the Panamanian advisor specifically stated to Dr. Bradner and advised him about the FBAR form – a statement which was allegedly acknowledged by the doctor.

IRS Focus Expands to Undisclosed Bank Accounts in Panama and Costa Rica

There are some very interesting facts about this case. Some facts, like the conceded knowledge of the FBAR and the use of foreign corporation to conceal unreported assets and income, will undoubtedly greatly complicate Dr. Bradner’s legal position. They also correspond to the general pattern of facts for cases which are chosen by the IRS for criminal prosecution.

The most interesting side of this case, however, is that this case testifies to the ever expanding scope of IRS investigation of undisclosed foreign accounts, with the particular focus on the bank accounts in Panama and Costa Rica. About two years ago, I predicted that there will be more criminal prosecutions coming out of Central America once the IRS gradually expands its focus beyond Switzerland and Israel.

While there are other prominent candidates, the bank accounts in Panama and Costa Rica offer special rewards to the IRS: there is a large concentration of retired Americans (and Israeli-Americans) in Central America, the Panamanian tax cooperation and exchange agreement signed in 2010 (i.e. almost two years after the UBS case, allowing the IRS to pursue more cases down the road without any major statute of limitations hassles), and there has certainly been a certain amount of abuse committed by tax professionals in Central America in cooperation with Swiss tax advisors (shockingly, a lot of tax attorneys in Central America are still oblivious to important U.S. tax requirements, including FBARs).

This is why the investigations of the undisclosed bank accounts in Panama and Costa Rica will only grow in prominence in the coming years as IRS will seek to deepen U.S. tax compliance in this region.

Contact Sherayzen Law Office for Professional Help with Your Voluntary Disclosure of Bank Accounts in Panama and Costa Rica

If you have undisclosed bank accounts in Panama and Costa Rica, you may face severe FBAR penalties. This is why you need to contact the experienced international tax law firm of Sherayzen Law Office as soon as possible. We can guide you through your voluntary disclosure options, create and help you implement the voluntary disclosure plan, and defend your interests against the IRS.

Contact Us to Schedule Your Confidential Consultation!

Attorney Jailed for Helping Hide Money for Clients at Their Swiss Bank Accounts

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On March 18, 2014, the IRS and U.S. Department of Justice announced the California attorney Christopher M. Rusch was sentenced to serve 10 months in prison for helping his clients Mr. Stephen M. Kerr and Mr. Michael Quiel, both businessmen from Phoenix, hide millions of dollars in secret Swiss bank accounts at UBS AG and Pictet & Cie. Additionally, U.S. District Judge James A. Teilborg also ordered Rusch to serve three years of supervised release following his prison sentence.

The sentencing following the February 6, 2013, Mr. Rusch guilty plea to conspiracy to defraud US government and failing to file a Report of Foreign Bank and Financial Accounts (FBAR). Mr. Kerr and Mr. Quiel were sentenced in September of 2013 to each serve 10 months in prison after both were tried and convicted of filing false income tax returns for 2007 and 2008. The jury also convicted Mr. Kerr of failing to file FBARs for 2007 and 2008 (with respect to the Swiss bank accounts).

Facts of the Case

According to the DOJ, Mr. Kerr and Mr. Quiel, with the assistance of Mr. Rusch and others (including Swiss nationals) established nominee foreign entities and corresponding bank accounts in Switzerland to conceal Mr. Kerr and Mr. Quiel’s ownership and control of stock and income they deposited in these accounts. Mr. Rusch testified at trial, admitting that he and others caused the sale of the shares of stock through the undeclared accounts.

Rusch further testified that, at Mr. Kerr and Mr. Quiel’s direction, he transferred some of the money in the secret accounts back to the United States through Mr. Rusch’s Interest on Lawyer’s Trust Account before dispersing the money for Mr. Kerr and Mr. Quiel’s benefit, including the purchase of a multi-million dollar golf course in Erie, Colorado. According to court documents and evidence presented at trial, with Mr. Rusch’s assistance, Mr. Kerr and Mr. Quiel each failed to report more than $ 4,600,000 and $2,000,000 of income, respectively, during 2007 and 2008 which they hid in the undeclared accounts with Mr. Rusch’s assistance.

IRS and DOJ Continue Pursuit of US Tax Advisors for US Taxpayers with Undisclosed Swiss Bank Accounts

Since the 2008 UBS case victory, the IRS and the DOJ have been continuously increasing the pressure on the US and foreign tax advisors who help their US clients hide money in offshore accounts, particularly Swiss bank accounts.

“This prosecution serves notice that the Department of Justice will not tolerate fraudulent activity designed to undermine the integrity of our income tax system,” said U.S. Attorney John S. Leonardo for the District of Arizona.

“Today, Mr. Rusch has been held accountable for his actions in assisting wealthy individuals hide millions of dollars in secret offshore bank accounts and dodge the tax system,” said Chief of IRS-Criminal Investigation Richard Weber. “In addition, Mr. Rusch used his attorney trust account to funnel money from the secret offshore accounts back to Mr. Kerr and Mr. Quiel for their personal benefit, including the purchase of a multi-million dollar golf course. As the investigation into offshore tax evasion continues, Criminal Investigation will leave no financial stone unturned as we continue to vigorously pursue new leads.”

Top Three Lessons from Rusch Case

Mr. Rusch has committed three “cardinal sins” of tax advising. First, he helped his clients in their pursuit of tax evasions. Second, he used the nominee corporate structures to help his clients evade taxes, thereby tinting the first sin with additional degree of consciousness, willfulness and complexity, providing the IRS with an additional incentive to pursue criminal charges. Finally, Mr. Rusch abused his position as an attorney with a client trust account (which is an ethical violation in addition to legal violation).

The combination of these factors really hurt the Mr. Rusch’s case and provide the IRS and the DOJ with ample ammunition to pursue criminal charges. Of course, the fact that Swiss bank accounts were involved only aggravated Mr. Rusch’s already difficult legal position.

Liechtenstein Offshore Accounts After the Non-Prosecution Agreement

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Liechtenstein offshore accounts no longer offer to U.S. taxpayers the bank secrecy protection for which they were famous for a very long time prior to 2008. In fact, after the Non-Prosecution Agreement between the U.S. Department of Justice (“DOJ”) and Liechtensteinische Landesbank AG, after the passage of the 2012 tax law in Liechtenstein, and after achieving the agreement in substance with respect to the implementation of FATCA on April 2, 2014, one can say that Liechtenstein offshore accounts are no longer the tax haven for U.S. taxpayers.

This article explores the substance of the Non-Prosecution Agreement between the DOJ and Liechtensteinische Landesbank AG with respect to Liechtenstein Offshore Accounts, the FATCA triumph in Liechtenstein, and the generally recommended course of action for the U.S. taxpayers with still undisclosed Liechtenstein offshore accounts.

Non-Prosecution Agreement with Respect to Liechtenstein Offshore Accounts

On July 30, 2013, the DOJ and the IRS Criminal Investigation until announced that they reached a non-prosecution agreement (“NPA”) with Liechtensteinische Landesbank AG, a bank based in Vaduz, Liechtenstein (“LLB-Vaduz”). Under the Agreement, LLB-Vaduz agreed to pay more than $23.8 million to the United States (a sum of forfeiture of $16,316,000, representing the total gross revenues that it earned in maintaining these undeclared accounts, and $7,525,542 in restitution to the IRS) and turned over more than 200 files of U.S. taxpayers who held undeclared Liechtenstein offshore accounts at LLB-Vaduz, directly or through sham corporations, foundations or trusts (“structures”).

Moreover, as part of the NPA, LLB-Vaduz admitted various facts concerning its wrongful conduct and the remedial measures that it took to cease that conduct. Specifically, LLB-Vaduz admitted that it knew certain U.S. taxpayers were maintaining undeclared accounts at LLB-Vaduz in order to evade their U.S. tax obligations, in violation of U.S. law. In addition, LLB-Vaduz admitted that it knew of the high probability that other U.S. taxpayers who held undeclared Liechtenstein offshore accounts did so for the same unlawful purpose because significant numbers of U.S. taxpayers employed structures to hold their Liechtenstein offshore accounts , instructed LLB-Vaduz to use code names or numbers to refer to them on account statements and other bank documents, instructed LLB-Vaduz not to mail such documents to them in the United States, and instructed LLB-Vaduz not to disclose their identity to the IRS, among other things. According to the DOJ, at the end of 2006, LLB-Vaduz held more than $340 million of undeclared assets on behalf of U.S. taxpayers in more than 900 Liechtenstein offshore accounts .

Furthermore, under the NPA, LLB-Vaduz was obligated to continue to cooperate with the United States for at least three years from the date of the agreement.

Finally, though it does not appear to be part of the formal Agreement, LLB-Vaduz has decided to close its wholly-owned Swiss subsidiary, Liechtensteinische Landesbank (Switzerland) Ltd. and has also decided to sell another wholly-owned subsidiary, Jura Trust AG.

In return, under the NPA, the DOJ and the IRS promised that LLB-Vaduz will not be criminally prosecuted for opening and maintaining undeclared Liechtenstein offshore accounts for U.S. taxpayers from 2001 through 2011, when LLB-Vaduz assisted a significant number of U.S. taxpayers in evading their U.S. tax obligations, filing false federal tax returns with the IRS and otherwise hiding Liechtenstein offshore accounts held at LLB-Vaduz from the IRS.

Lesson of the NPA for the Foreign Banks

The NPA with LLB-Vaduz contains a lot of lessons for foreign banks on how to deal with past misconduct with respect to undeclared foreign accounts. The DOJ specifically acknowledged the following factors:

LLB-Vaduz’s voluntary implementation of various remedial measures beginning in June 2008, before the investigation of its conduct began;

LLB-Vaduz’s voluntary cooperation with this Office and the government of Liechtenstein after becoming aware of this Office’s investigation;

LLB-Vaduz’s willingness to continue to cooperate with this Office and the IRS to the extent permitted by applicable law;

LLB-Vaduz’s substantial support for the 2012 Law, which has already permitted the production to the Department of Justice of more than 200 account files of U.S. taxpayers who held undeclared accounts at LLB-Vaduz;

LLB-Vaduz’s representation, based on an investigation by external counsel, that the misconduct under investigation did not, and does not, extend beyond that described in the statement of facts;

The point of cooperation was emphasized by the Assistant Attorney General Kathryn Keneally: “this non-prosecution agreement addresses the past wrongful conduct of LLB-Vaduz in allowing U.S. taxpayers to evade their legal obligations through the use of undisclosed Liechtenstein bank accounts, while also acknowledging the extraordinary efforts of the bank in bringing about significant changes in Liechtenstein law.”

U.S. Attorney Preet Bharara concurred in the following statement: “Today’s agreement with Liechtensteinische Landesbank AG reflects the unprecedented nature of the bank’s cooperation… .”

In its press release, the DOJ recognized that, in 2008, before the IRS and the U.S. Attorney’s Office began the investigation, LLB-Vaduz voluntarily implemented a series of remedial measures to stop assisting undeclared U.S. taxpayers in evading federal income taxes. The DOJ also emphasized LLB-Vaduz’s extraordinary cooperation in the form of its support and assistance in 2012 to obtain a change in law by the Liechtenstein Parliament that permitted the Department of Justice to request and obtain the bank files of non-compliant U.S. taxpayers from Liechtenstein without having to identify the taxpayers by name (the “2012 Law”).

So, a foreign bank that discovers potential U.S. tax non-compliance should be proactive in its conduct, document well its efforts to do due diligence, use an independent counsel to investigate the potential non-compliance, and report such non-compliance to the IRS to the extent permitted by the local law.

Impact of the NPA on US Taxpayers with Liechtenstein Offshore Accounts

The DOJ and the IRS have made it clear – the NPA applies only to LLB-Vaduz and not to any of its subsidiaries or any individuals. Therefore, U.S. Taxpayers with undeclared Liechtenstein Offshore Accounts are not protected by the NPA.

Developments Since the NPA Relevant to US Taxpayers with Liechtenstein Offshore Accounts

Two developments since the NPA are particularly relevant to U.S. Taxpayers with undeclared Liechtenstein Offshore Accounts. First, pursuant to the 2012 Law in Liechtenstein, the Department of Justice submitted a second request to the Liechtenstein government for records relating to various Liechtenstein firms that provided trust administration and other fiduciary services that enabled U.S. taxpayers to hold undeclared accounts through structures at banks in Liechtenstein, Switzerland and elsewhere.

Second, on April 2, 2014, the DOJ and the IRS confirmed that Liechtenstein and the United states have reached an agreement in substance with respect to the implementation of the Foreign Account Tax Compliance Act (“FATCA”).

US Taxpayers with Liechtenstein Offshore Accounts Should Immediately Consider Their Voluntary Disclosure Options.

The NPA, combined with the second request for records and FATCA implementation agreement, presents a potentially highly damaging threat to U.S. taxpayers with undisclosed Liechtenstein offshore accounts. At this point, these taxpayers are under a very high probability of detection and are well-advised to consider their voluntary disclosure options in order to reduce the possibility of criminal prosecution.

Contact Sherayzen Law Office for Professional Help With Your Offshore Voluntary Disclosure

If you have undeclared foreign accounts in Liechtenstein or any other foreign country, contact Sherayzen Law Office for professional help. Our experienced team of international tax professionals can help you with its thorough analysis of your case and the available voluntary disclosure options. We can then implement these voluntary disclosure strategies for you and vigorously defend your case against the IRS.

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IRS Pursuit of Mizrahi Bank Clients Gains Steam

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It is well-known that the IRS is in hot pursuit of U.S. taxpayers with undisclosed bank accounts in Mizrahi Bank. There have been a number of victories that the IRS has scored against Mizrahi Bank clients. The latest example of this is the case of Monajem Hakimijoo who plead guilty on February 13, 2014.

According to court documents, Mr. Hakimijoo, a U.S. citizen, and his brother maintained an undeclared bank account in Israel at Mizrahi Bank in the name of Kalamar Enterprises, a Turks and Caicos Islands entity they used to conceal their ownership of the account. Mr. Hakimijoo and his brother used the funds in the Kalamar account as collateral for back-to-back loans obtained from the Los Angeles branch of Mizrahi Bank. Although Mr. Hakimijoo and his brother claimed the interest paid on the back-to-back loans as a business deduction for federal tax purposes, they failed to report the interest income earned in their undeclared, Israel-based account as income on their tax returns. In total, Mr. Hakimijoo failed to report approximately $282,000 in interest income. The highest balance in the Kalamar Enterprises account was approximately $4,030,000.

As further described in the release by the U.S. DOJ, in March 2013, Mr. Hakimijoo was scheduled to be interviewed by Justice Department attorneys and IRS special agents. Prior to the interview, Mr. Mr. Hakimijoo, through counsel, provided the attorneys and special agents with copies of his amended tax returns for 2004 and 2005. When asked if the amended tax returns had been filed with the IRS, Mr. Hakimijoo indicated that the returns had been filed. Shortly thereafter, the IRS determined there was no record of the amended returns being filed with the IRS. When Mr. Hakimijoo was asked to provide copies of cancelled checks to prove that the taxes reflected on the amended returns had been paid, none were provided.

Points of Interest of the Mr. Hakimijoo Case

Several features are prominent in this case. First, the Mizrahi Bank account in question was not in Switzerland, but Israel itself. This is one more example of the IRS interest in countries other than Switzerland. Israel is an obvious target, but it appears that it will not take long for the IRS to expand into the neighboring country of Lebanon.

Second, it seems incredible that Mr. Hakimijoo would engage in such reckless conduct as to gamble on the IRS not finding out that he has not filed the amended tax returns. Equally puzzling is the fact that the guilty plea did not involve any type of a false statement charge.

Finally, unfortunately for Mr. Hakimijoo, the facts of his case were greatly influenced by the use of an entity to conceal the ownership of the Mizrahi Bank account.

U.S. Taxpayers with Undisclosed Accounts in Israel Should Do Some Type of Voluntary Disclosure

Mr. Hakimijoo is the latest in a series of defendants charged in the U.S. District Court for the Central District of California with concealing undeclared bank accounts in Israel that were used to obtain back-to-back loans in the United States. It is unlikely that the IRS will relent its pursuit at this point given the wealth of information that has been collected through the IRS voluntary disclosure programs as well as the Swiss voluntary disclosure program for banks.

The biggest lesson for U.S. taxpayers with undisclosed accounts in Israel and Mizrahi Bank specifically is that the IRS will not limit itself to Switzerland. Hence, there is a great urgency for these taxpayers to commence the analysis of their voluntary disclosure options as soon as possible. Some options may still be open if these taxpayers come forward now; these options may be closed once the taxpayer is subject to an IRS investigation.

Contact Sherayzen Law Office for Experienced Professional Help with Your Voluntary Disclosure

If you are a U.S. person who has (or had at any point since 2007) undisclosed bank or financial accounts in Israel and any other foreign country, you should contact Sherayzen Law Office as soon as possible for professional help. Our experienced international tax law firm has helped taxpayers throughout the world with their voluntary disclosures and we can help you.

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Filing an Extension for US Taxpayers Residing Outside of the United States

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As is commonly known, US taxpayers who file on a calendar year basis have a filing due date of April 15th. In general, if a tax is owed, it should be paid by the due date of your tax return, without regard to any extension of time for filing the return. Most US taxpayers who reside in the United States are aware that they can obtain a tax return filing extension. But what if you are one of the numerous US taxpayers residing outside of the United States when a tax return is due? Can an extension be filed, and if so, will any penalties be applied if the tax owed is not paid on time? Will interest be owed on the unpaid tax?

This article strives to answer these questions and explain different types of extensions that the IRS may grant for US taxpayers who are not in the country when their returns are due.

Extension Options for US Taxpayers Residing Outside of the United States

In general, there are four possible types of extensions the IRS may grant for US taxpayers who are out of the country: an automatic two-month extension, an automatic six-month extension (in reality, this is a four-month extension), an additional extension for taxpayers residing outside of the United States, and an extension of time to meet tests (also for the US taxpayers residing outside of the United States).

The information contained in this article is intended for general knowledge, and does not constitute tax or legal advice. If you have further questions, please contact the experienced US-International tax law firm of Sherayzen Law Office, Ltd.

Automatic Two-Month Extension for US Taxpayers Residing Outside of the United States

Taxpayers are allowed an automatic two-month extension to file their return and pay federal income taxes owed if they are US citizens or resident aliens, and on the regular due date of the return, they are either US taxpayers residing outside the United States and Puerto Rico or their post of duty is outside the US and Puerto Rico (or if they are in military or naval service on duty outside the US and Puerto Rico).

In order to qualify for this extension, taxpayers must attach a statement to their returns demonstrating which of these two circumstances they meet. Note though, that even if taxpayers are granted this extension (or any extension detailed in this article), they will still have to pay any interest on any tax liability owed by the regular due date of their return (April 15th for calendar year taxpayers).

Automatic Six-Month Extension for US Taxpayers Residing Outside of the United States

In addition to the automatic two-month extension, US taxpayers who are not able to file their returns on time by the due date can generally get an automatic six-month extension of time to file. The two-month and the six-month extensions start at the same time; so, in reality, this is a merely four-month additional extension for US taxpayers residing outside of the United States.

It is important to emphasize that this additional automatic extension however does not extend the time to pay.

In order to get this automatic extension, the taxpayer must file Form 4868 or use the IRS efile system showing a correctly-estimated tax liability based on all available information. However, if a taxpayer intends for the IRS to figure his or her tax, or is under a court order to file by the regular due date, they may not be eligible for this extension

Additional Extension of Time (Two-Months) for US Taxpayers Residing Outside of the United States

In addition to the six-month extension, a taxpayer who is out of the country can also request a discretionary two-month additional extension of time to file his or her tax return (to December 15 for calendar year taxpayers) by sending the IRS a letter detailing the reasons why the additional two-month extension is necessary. The letter needs to be sent by the extended due date (October 15 for calendar year taxpayers) to the Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0045 address. Check irs.gov for any mailing changes and updates.

Note that taxpayers will not receive any notification from the IRS unless their requests are denied. In addition, taxpayers who have an approved extension of time to file Form 2350 (described below) will not be able to request the discretionary two-month additional extension.

Extension of Time to Meet Tests for US Taxpayers Residing Outside of the United States

In general, a taxpayer cannot get an extension of more than six months (or eight months if you count the additional extension of time for taxpayers residing outside of the United States). However, an exception may exist if a taxpayer is outside the US and meets certain requirements. A taxpayer may be granted an extension of more than six months to file a tax return if time is needed to meet either the bona fide residence test or the physical presence test in order to qualify for either the foreign earned income exclusion or the foreign housing exclusion or deduction (see IRS rules for specifics of the exclusion or deduction).

Taxpayers should request an extension of time to meet tests if all three of the following factors are applicable: 1) They are US citizens or resident aliens, 2) they anticipate meeting either the bona fide residence test or the physical presence test, but not until after their tax return are due, and 3) their tax homes are in foreign countries throughout the period of bona fide residence or physical presence, whichever applies.

In general, if a taxpayer is granted this extension it will typically be 30 days beyond the date on which either the bona fide residence test or the physical presence test can reasonably be expected to be met. (If a taxpayer has moving expenses that are for services performed in two years, the extension may be granted as long as an until after the end of the second year).

To apply for this extension, Form 2350 (“Application for Extension of Time To File US Income Tax Return”) will need to be filed by the due date for filing a taxpayer’s return. The IRS notes, “Generally, if both your tax home and your abode are outside the United States and Puerto Rico on the regular due date of your return and you file on a calendar year basis, the due date for filing your return is June 15.” Note that if a taxpayer meets either test, but happens to file a tax return before the test is actually met, the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction can subsequently be claimed on a Form 1040X.

Contact Sherayzen Law Office for Professional Help with Your Tax Returns as a Taxpayer Residing Outside of the United States

If you are a US taxpayer who is residing outside of the United States, contact Sherayzen Law Office for professional help with your US compliance. In additional to preparing your US tax return, we will do a thorough overview of your other potential US tax compliance requirements (such as PFICs, FBARs, Form 8938, et cetera) so that you remain in full compliance with US tax laws.

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