International Tax Attorney Minnesota Minneapolis

IRS Tax Attorney Perspective on the Top 3 International Tax Enforcement Trends in 2014

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As an IRS tax attorney, I foresee that 2014 is likely to be a continuation of the global tax enforcement trends that started in the earlier years. Specifically, I believe the following three moves by the IRS will form the core of the US international tax enforcement efforts in 2014.

IRS Tax Attorney Top Trend #1: FATCA IGAs

I believe we will see a continuous efforts by the U.S. government to expand the enforcement scope of the Foreign Account Tax Compliance Act by increasing the number of Intergovernmental Agreements (“IGAs”). Through the IGAs, the IRS hopes to increase FATCA compliance to the most important tax jurisdictions in the world.

Of course, expanding FATCA compliance to such countries as China, Russia and even India, will continue to present a formidable challenge to the IRS. If IGAs are actually enforced in these countries, it would be a major victory for U.S. enforcement efforts given the sheer number of non-compliant U.S. taxpayers from these countries and their stubborn belief (less so in India than in other countries) that the IRS will not be able to expand FATCA to these countries.

IRS Tax Attorney Top Trend #2: US DOJ Program for Swiss Banks

Undoubtedly, the latest initiative by the US government in the form of the Department of Justice Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (the “Program”) will occupy the central stage if the attention of any IRS tax attorney who practices in the area of international tax compliance. The Program is a unique, unprecedented effort to apply the lessons from the individual IRS Offshore Voluntary Disclosure Program (“OVDP” now closed) that has been running in the United States since 2012 in its current form (and since 2003 in other variations) to foreign banks located in foreign jurisdictions.

As I predicted earlier, it is likely that the Program, if successful, will become the template for similar programs throughout the world. Potentially, it could become a permanent feature in the current arsenal of tax enforcement tools.

IRS Tax Attorney Top Trend #3: OVDP for Non-Compliant US Taxpayers

The latest version of the IRS Offshore Voluntary Disclosure Program was launched in 2012 on the heels of the success of 2011 Offshore Voluntary Disclosure Initiative. I anticipate that this trend will continue into 2014. In combination with the Program, it is likely that an ever increasing number of non-compliant U.S. taxpayers will join the OVDP, especially since they are urged to do so by the Swiss banks without the benefit of analyzing their voluntary disclosure options (something that should be done by an IRS tax attorney who specializes in international tax compliance such as at Sherayzen Law Office).

Contact Sherayzen Law Office for Help with International Tax Compliance

So far, I provided just the top three trends that every IRS tax attorney who practices in the area of international tax law should know. However, even this simplistic overview makes it abundantly clear that international tax compliance is real and you should be worried about it if you have undisclosed foreign assets or income.

Given the complexity of the international tax law and the draconian penalties in case of non-compliance or incorrect compliance, it is very important to choose the right firm to represent your interests. This is why you should contact the IRS tax practice of Sherayzen Law Office who has built a wide range of expertise in the area of international tax compliance.

We offer specialized services for international tax matters to individuals and businesses with foreign income and/or assets. If you are currently in violation of US tax laws, we can help you bring your tax affairs into full compliance in a responsible manner.

PFIC Attorneys: UBS Swiss Accounts and PFICs

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As most PFIC attorneys will readily affirm, US persons with Swiss accounts often hold at least a portion of their deposits in various types of investments, some of which may be subject to the heavily burdensome US passive foreign investment company (“PFIC”) tax regime. Determining whether a particular investment is a PFIC is not always an easy task, and sometimes the services of both foreign brokers and a US-based international tax attorney experienced in PFICs is likely to be necessary in order to make such an assessment.

This article will briefly explain the basics the US passive foreign investment company (“PFIC”) tax regime with the emphasis on UBS financial products. It is not intended to constitute tax or legal advice. If you hold, or potentially hold PFICs in your Swiss or other foreign accounts, you are advised to seek the assistance of competent, experienced tax experts. Owner Eugene Sherayzen is an expert international tax PFIC attorney at Sherayzen Law Office, Ltd. who can help with your all of your tax and legal needs.

PFIC Attorneys: The PFIC Tax Regime

Under Internal Revenue Code Section 1291, persons subject to US tax receiving income from a PFIC will be subject to a special tax and interest regime. IRC Section 1297(a) defines a PFIC to mean any corporation if, “(1) 75 percent or more of the gross income of such corporation for the taxable year is passive income, or (2) the average percentage of assets (as determined in accordance with subsection (e)) held by such corporation during the taxable year which produce passive income or which are held for the production of passive income is at least 50 percent.” If a US person is required to report PFIC income, the Form 8621, “Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund” will need to be filed for each PFIC held.

In general, US persons will be required to file if they are direct or indirect shareholders of a PFIC (various attribution and ownership rules may need to be analyzed to make such a determination in certain cases), and any of the following apply: (1) Certain direct or indirect distributions are received from a PFIC, (2) gain is recognized on a direct or indirect disposition of PFIC stock, or (3) if the taxpayer is making an election reportable in Part II of the form.

Under IRC Section 1291 (the “default” PFIC rules), US taxpayers receiving “excess distributions” will be subject to the special PFIC tax and interest regime. An excess distribution is defined by the IRS to mean the portion of a distribution received in the current year, “[T]hat is greater than 125% of the average distributions received in respect of such stock by the shareholder during the 3 preceding tax years (or, if shorter, the portion of the shareholder’s holding period before the current tax year). No part of a distribution received or deemed received during the first tax year of the shareholder’s holding period of the stock will be treated as an excess distribution.” (Conversely, the entire amount of any gain recognized on a disposition of PFIC shares will be treated as an excess distribution).

Other PFIC reporting methods may be available as a result of an election, but you need to consult the experienced PFIC attorneys to determine whether these elections constitute a valid option in your case.

PFIC Attorneys: UBS Financial Products and PFICs

As most PFIC attorneys who deal with Swiss clients know, UBS bankers are likely to recommend to their clients to open accounts that may contain PFICs. Sometimes, it is easy to recognize a PFIC; oftentimes, a mutual fund or an investment fund is directly identified and PFIC attorneys can classify these instrument properly.

On the other hand, PFIC attorneys are familiar with a number of cases where UBS and other Swiss banks would offer products which are much harder to classify. For example, UBS AG sells a large variety of investments that may or may not be PFICs, depending upon various factors specific to the type of product involved: UBS Certificates, UBS Bonus certificates, Discount Certificates, UBS PERLES (such as, Sector PERLES, Country Index PERLES, and Multinational Index PERLES), UBS Rolling Certificates, Open End Index Certificates on global stock exchanges (such as the “DAX” (Deutscher Aktien Index)), and Trigger Performance Securities linked to an underlying index or a weighted basket of indices, among many others.

If you have such investments, you should consult the experienced PFIC attorneys of Sherayzen Law Office to determine whether you need to do PFIC compliance.

PFIC Attorneys: US Program for Swiss Banks and PFICs

With the new US Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (the “Program”) in effect, the US Department of Justice and the IRS have significantly increased their tools for locating undisclosed foreign bank accounts held by US taxpayers. Given the pattern of investments conducted by Swiss bankers, there is a very high chance that these accounts may hold PFICs even if the accounts are held in banks other than UBS (which is not eligible to participate in the Program).

In light of the tight deadlines that U.S. accountholders face in order to disclose their Swiss accounts before the Swiss Banks do it under the Program, it is essential that an international tax attorney experienced in Swiss PFICs is retained to handle your voluntary disclosure.

Contact Sherayzen Law Office for Help with Swiss PFICs

If you have undisclosed financial accounts in Switzerland, you may need to do proper PFIC reporting as part of your voluntary disclosure. This is why it is advised that you contact Eugene Sherayzen at Sherayzen Law Office, an experienced PFIC attorney for professional help.

US-Switzerland Bank Program: Migros Bank, Bank Coop, Linth Bank, Berner Kantonalbank and Vontobel Holding

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Several weeks ago, in another article, I detailed some of the recent developments in the US-Switzerland Bank Program, officially called The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (the “US-Switzerland Bank Program”) between the U.S. Department of Justice (“DOJ”) and the government of Switzerland, and noted that Valiant Holdings AG had officially entered the Program. Since December 9th, the deadline imposed by Swiss Financial Market Supervisory Authority (“FINMA”) for Swiss banks to notify that authority whether they intended to enroll in the Program or not, more Swiss banks have announced that they will participate: Linth Bank, Migros Bank, Bank Coop, Berner Kantonalbank, and Vontobel Holding AG are among them.

Most Swiss banks are not listed on the stock exchange, so they not obliged to publicly disclose their intentions regarding the Program. This article will detail the further developments involving Swiss banks that have chosen to enter the US-Switzerland Bank Program, and is not intended to convey legal or tax advice. U.S. taxpayers holding Swiss accounts in any of the banks involved should pay close attention to these developments and seek the advice of professional, competent tax attorneys in these matters. The international tax expertise of Sherayzen Law Office, PLLC can assist you in all of your tax and legal needs.

Migros Bank, Bank Coop, Linth Bank, and Berner Kantonalbank

According to various news sources, Migros Bank announced it would most likely enter the Program in Category 2. Migros Bank noted that just a small portion of its 800,000 customers are U.S. persons (and most of the U.S. persons either have dual U.S.-Switzerland citizenship or have U.S. residence permits). Because of the compliance difficulties in knowing whether such persons have paid all of their U.S. taxes (a requirement), they have decided to enter the US-Switzerland Bank Program. Migros Bank also noted that it might be approved under Category 4. The bank also claimed that it never actively sought out U.S. clients.

Bank Coop (majority-owned by Basler Kantonalbank, a bank that is already under investigation by the U.S.) also stated that it would enter the US-Switzerland Bank Program in Category 2. Bank Coop noted that accounts held by U.S. persons amounted to less than 0.3% of its total managed-accounts. Like Bank Migros, Bank Coop also claimed that it did not actively seek U.S. clients.

Linth Bank also announced it was entering the US-Switzerland Bank Program to attempt to bring a swift resolution the US-Switzerland dispute.

Like Migros Bank and Bank Coop, Berner Kantonalbank AG will enter the US-Switzerland Bank Program in Category 2. Berner Kantonalbank noted that a small portion (0.2%) of its managed accounts was held by U.S. persons. Its CEO, Hanspeter Ruefenacht, was quoted in one news report stating that the bank, “never sought to do business with American clients”.

Vontobel Holding AG

Vontobel Holding AG will also enroll in the US-Switzerland Bank Program, but under a different rational than the banks mentioned above. Vontobel Holding announced it will enter the US-Switzerland Bank Program under the DOJ’s category for Swiss banks that have not committed U.S. tax-related offenses (i.e. a Category 3 bank), and are thereby exempt from penalties under the Program. The bank stated that in 2008 it proactively instituted various measures to transfer its U.S. clients to its Swiss Wealth Advisors unit (which is registered with the Securities and Exchange Commission). American clients who decided not to move their assets to the advisors unit were made to leave the bank.

Impact on US Taxpayers

U.S. taxpayers who either hold or previously held undisclosed bank accounts at any of the Swiss banks eligible for the US-Switzerland Bank Program are advised to seek competent and experienced legal assistance. U.S. taxpayers will likely face substantial civil and potential criminal penalties if they continue to hold undisclosed accounts or if their cases are not handled properly.

Contact Sherayzen Law Office for Help With Undisclosed Swiss Accounts

The experienced international tax law firm of Sherayzen Law Office, PLLC can help with your all of your voluntary disclosure issues, including undisclosed accounts and other assets in Switzerland.

FBAR Penalties: Outrageous, Draconian but Real

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If you have undisclosed foreign financial accounts that should have been reported on the Report of Foreign Bank and Financial Accounts (“FBAR”), you may be facing the FBAR penalties. By far, the FBAR contains the most severe civil penalties and significant criminal penalties among all international tax forms. It is important to understand that these penalties, despite their apparently extreme nature, are real and you may be facing them.

FBAR Criminal Penalties

The two most common cases for criminal prosecution are willful failure to file an FBAR and willful filing a false FBAR, especially when combined with potential tax evasion. The criminal FBAR penalties in these cases may be up to the limit set in 31 U.S.C. § 5322. This means that, potentially, a person who willfully fails to file an FBAR or files a false FBAR may be subject to a prison term of up to 10 years, criminal penalties of up to $500,000 or both.

FBAR Civil Penalties

In addition to criminal penalties, FBAR penalties include a rich arsenal of civil penalties. The exact penalties that a person may be facing will depend on that person’s particular circumstances; these circumstances must be evaluated by an experienced international tax attorney.

In general, where the taxpayer willfully failed to file the FBAR, or destroyed or otherwise failed to maintain proper records of account, and the IRS learned about it (e.g. during an investigation), the taxpayer is likely to face the worst-case scenario with draconian penalties. The IRS may impose civil FBAR penalties of up to the greater of $100,000, or 50 percent of the value of the account at the time of the violation (in addition to the already discussed criminal FBAR penalties of up to $500,000, or 10 years of imprisonment, or both).

In certain circumstances, it is possible to mitigate the penalties, but this issue should be evaluated by an experienced international tax attorney. If mitigation is an option for you, then it may dramatically alter your calculation of willful penalties.

A less severe round of civil FBAR penalties may be imposed if a US person negligently and non-willfully failed to file the FBAR, and the IRS learned about it during an investigation. Unlike the first scenario, there are unlikely to be criminal penalties for the non-willful failure to file the FBAR. Rather, the taxpayer is likely to face non-willful FBAR penalties of up to $10,000 per violation (i.e. each unreported account in each year). However, where there is a pattern of negligence, additional civil FBAR penalties of no more than $50,000 may be imposed per each violation. Again, in limited circumstances, the taxpayer maybe eligible for the mitigation the penalties, but this issue should be evaluated by an experienced international tax attorney. While the impact of non-willful mitigation is not likely to be as dramatic as that of the willful penalties, such mitigation may still have a significant impact on the total number of penalties.

Reasonable Cause Exception and OVDP FAQ #17 (OVDP Is Now Closed)

There are two major exceptions to FBAR penalties. First, if you are able to establish reasonable cause, you may be able to escape all FBAR penalties. Again, an experienced international tax attorney should be consulted on whether you have a valid reasonable cause exception and the chances that this strategy will succeed. Second, in general, pursuant to OVDP FAQ #17, you may be able to avoid FBAR penalties if you have no additional U.S. tax liability as a result of  your voluntary disclosure and you already reported all of the income associated with the undisclosed foreign financial account on your tax returns. I cannot stress enough the importance of consulting an international tax attorney to  determine whether your case fits within the requirements of the OVDP Q&A #17.

IRS Offshore Voluntary Disclosure Program Closed

It is important to note that the FBAR penalty structure outlined above is not followed by the official IRS Offshore Voluntary Disclosure Program (OVDP). Rather, OVDP replaces this penalty structure with its own three-tiered penalty system with the emphasis on the aggregate balance of all accounts, rather than the number of accounts. Moreover, there is no reasonable cause exception to the OVDP structure of penalties. However, OVDP FAQ #17 can still be applied to  the foreign financial accounts of the participating taxpayer whenever the situation warrants its application.

Given the enormous differences that exist between the IRS OVDP and the traditional statutory FBAR penalties, it is crucially important to consult an experienced international tax attorney in choosing your way to reduce your FBAR penalties.

Contact Sherayzen Law Office for Help With Your FBAR Penalties

If you have undisclosed foreign financial accounts and you are facing the FBAR penalties, contact Sherayzen Law Office as soon as possible. Our international tax firm will thoroughly analyze your case, estimate your FBAR penalties (both, under the traditional and OVDP penalty structures), determine the options and strategies that may be used in your Offshore Voluntary Disclosure, and implement your case plan (including the creation of any necessary legal documents and tax forms).

We are the tax experts you are looking for to handle your case!