taxation law services

The Pursley Case: Offshore Tax Evasion Leads to Criminal Conviction

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On September 6, 2019, the Tax Division of the US Department of Justice (“DOJ”) announced another victory against Offshore Tax Evasion. This time, a Houston lawyer, Mr. Jack Stephen Pursley, was convicted of one count of conspiracy to defraud the United States and three counts of tax evasion. Let’s discuss this Pursley Case in more detail.

Facts of the Pursley Case

According to the evidence presented at trial, Mr. Pursley conspired with a former client to repatriate more than $18 million in untaxed income that the client had earned through his company, Southeastern Shipping. Southeastern Shipping had a business bank account located in the Isle of Man.

Knowing that his client had never paid taxes on these funds, Mr. Pursley designed and implemented a scheme whereby the untaxed funds were transferred from Southeastern Shipping’s foreign bank account to the United States. Mr. Pursley helped to conceal the movement of funds from the Internal Revenue Service (“IRS”) by disguising the transfers as stock purchases in domestic corporations in the United States, which Mr. Pursley owned and his client owned and controlled.

At trial, the DOJ proved that Mr. Pursley received more than $4.8 million and a 25% ownership interest in the co-conspirator’s ongoing business for his role in the fraudulent scheme. For tax years 2009 and 2010, Mr. Pursley evaded the assessment of and failed to pay the income taxes he owed on these payments by, among other means, withdrawing the funds as purported non-taxable loans and returns of capital. Mr. Pursley then used these funds for personal investments as well as purchase of properties, including a vacation home in Vail, Colorado and a property in Houston, Texas.

Potential Penalties in the Pursley Case

Judge Lynn Hughes has set sentencing for December 9, 2019. Mr. Pursley faces a statutory maximum sentence of five years in prison for the conspiracy count and five years in prison for each count of tax evasion. He also faces a period of supervised release, monetary penalties, and restitution.

Main Lesson from the Pursley Case

The main lesson from the Pursley case is for business lawyers. They should be very careful about involving themselves in schemes related to repatriation of overseas funds. These business lawyers should verify whether US taxes were paid on these funds and consult an international tax attorney concerning the legality of the proposed repatriation scheme.

Of course, if a business lawyer knows that his client never paid any US taxes on the funds, he should not participate in any stratagems which could be interpreted as conspiracy to defraud the United States. Otherwise, this lawyer would be at risk of finding himself in a situation similar to the Pursley case.

Contact Sherayzen Law Office for Professional Help With US International Tax Compliance

If a business lawyer finds out that he has a client with untaxed funds stored in an overseas account, he should urge the client to contact Sherayzen Law Office concerning the client’s offshore voluntary disclosure options. The main goal of such a voluntary disclosure would be to reduce and even eliminate the risk of a criminal prosecution.

Contact Sherayzen Law Office Today to Schedule Your Confidential Consultation!

July 2019 IRS Compliance Campaigns | International Tax Lawyer & Attorney

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On July 19, 2019, the IRS Large Business and International division (LB&I) announced the approval of another six compliance campaigns. Let’s discuss in more detail these July 2019 IRS compliance campaigns.

July 2019 IRS Compliance Campaigns: Background Information

In the mid-2010s, after extensive tax planning, the IRS decided to restructure LB&I in a way that would focus the division on issue-based examinations and compliance campaign processes. The idea was to let LB&I itself decide which compliance issues presented the most risk and required a response in the form of one or multiple treatment streams to achieve compliance objectives. The IRS came to the conclusion that this was the most efficient approach that assured the best use of IRS knowledge and appropriately deployed the right resources to address specific noncompliance issues.

The first thirteen campaigns were announced by LB&I on January 13, 2017. Then, the IRS added eleven campaigns on November 3, 2017, five campaigns on March 13, 2018, six campaigns on May 21, 2018, five campaigns on July 2, 2018, five campaigns on September 10, 2018, five campaigns on October 30, 2018 and three campaigns on April 16, 2019. With the additional six July 2019 IRS compliance campaigns, the IRS has created a total of fifty-nine total IRS compliance campaigns.

Six New July 2019 IRS Compliance Campaigns

The six new campaigns are: S-Corporations Built-in Gains Tax, Post-OVDP Compliance, Expatriation, High Income Non-Filers, US Territories – Erroneous Refundable Credits and Section 457A Deferred Compensation Attributable to Services Performed before January 1, 2009. As you can see, the new campaigns continue to maintain the IRS focus on US international tax compliance. Let’s discuss each campaign in more detail.

July 2019 IRS Compliance Campaigns: S-Corporations Built-in Gains Tax

This campaign actually focuses on a C-corporation that converted to S-corporation. The main issue here is the Built-in Gains (“BIG”) tax. If a C-corporation has a net unrealized built-in gain, converts to S-corporation and sells assets within five years after the conversion, then it will likely be subject to the BIG tax. The BIG tax is assessed to the S-corporation (this is why the campaign is named in this manner).

LB&I has found that S corporations are not always paying this tax when they sell the C-corporation’s assets after the conversion. LB&I has developed comprehensive technical content for this campaign that will aid revenue agents as they examine the issue. The goal of this campaign is to increase awareness and compliance with the law as supported by several court decisions. Treatment streams for this campaign will be issue-based examinations, soft letters, and outreach to practitioners.

July 2019 IRS Compliance Campaigns: Post-OVDP Compliance

This is an IRS campaign of an especially high interest for international tax lawyers, because it targets specifically taxpayers who went through the IRS Offshore Voluntary Disclosure Program (“OVDP”). The IRS noticed that some taxpayers again became noncompliant after they went through the OVDP.

The campaign will specifically target post-OVDP taxpayers who failed to remain compliant with their foreign income and asset reporting requirements. The IRS will address tax noncompliance through soft letters and examinations.

July 2019 IRS Compliance Campaigns: Expatriation

This is another IRS campaign of high interest to international tax attorneys. US citizens and long-term residents (defined as lawful permanent residents in eight out of the last fifteen taxable years) who expatriated on or after June 17, 2008, may not have met their filing requirements or tax obligations. The Internal Revenue Service will address noncompliance through a variety of treatment streams, including outreach, soft letters, and examination.

July 2019 IRS Compliance Campaigns: High Income Non-Filers

This campaign again focuses on US international tax law. In particular, the campaign targets high-income US citizens and resident aliens who receive compensation from overseas that is not reported on a Form W-2 or Form 1099. IRS audits are going to be the main treatment stream for this campaign.

July 2019 IRS Compliance Campaigns: US Territories – Erroneous Refundable Credits

Some bona fide residents of US territories are erroneously claiming refundable tax credits on Form 1040. This campaign will address noncompliance through a variety of treatment streams including outreach and traditional examinations.

July 2019 IRS Compliance Campaigns: Section 457A Deferred Compensation Attributable to Services Performed before January 1, 2009

This campaign addresses compensation deferred from nonqualified entities attributable to services performed before January 1, 2009. In general, IRC Section 457A requires that any compensation deferred under a nonqualified deferred compensation plan shall be includible in gross income when there is no substantial risk of forfeiture of the rights to such compensation. The campaign objective is to verify taxpayer compliance with the requirements of IRC Section 457A through issue-based examinations.

Contact Sherayzen Law Office for Professional Tax Help

If you have been contacted by the IRS as part of any of its campaigns, contact Sherayzen Law Office for professional help. We have helped hundreds of US taxpayers around the world with their US tax compliance issues, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

2019 Fourth Quarter IRS Interest Rates | PFIC Tax Lawyers

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On August 28, 2019, the Internal Revenue Service (“IRS”) announced that the 2019 Fourth Quarter IRS underpayment and overpayment interest rates will not change from the 3rd Quarter of 2019. This means that, the 2019 Fourth Quarter IRS underpayment and overpayment interest rates will be as follows:

  • five (5) percent for overpayments (four (4) percent in the case of a corporation);
  • two and one-half (2.5) percent for the portion of a corporate overpayment exceeding $10,000;
  • five (5) percent for underpayments; and
  • seven (7) percent for large corporate underpayments.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. The IRS used the federal short-term rate for July of 2019 to determine the 2019 Fourth Quarter IRS interest rates The IRS interest is compounded on a daily basis.

2019 Fourth Quarter IRS interest rates are important for many reasons. These are the rates that the IRS uses to determine how much interest a taxpayer needs to pay on an additional tax liability that arose as a result of an IRS audit or an amendment of his US tax return. The IRS also utilizes these rates with respect to the calculation of PFIC interest on Section 1291 tax.

As an international tax law firm, Sherayzen Law Office keeps track of the IRS underpayment interest rates on a regular basis. We often amend our client’s tax returns as part of an offshore voluntary disclosure process. For example, both Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures require that a taxpayer amends his prior US tax returns, determines the additional tax liability and calculates the interest on this liability.

Moreover, we very often have to do PFIC calculations for our clients under the default IRC Section 1291 methodology. This calculation requires the usage of the IRS underpayment interest rates in order to determine the amount of PFIC interest on the IRC Section 1291 tax.

Finally, it is important to point out that the IRS will use the 2019 Fourth Quarter IRS overpayment interest rates to determine the amount of interest that needs to be paid to a taxpayer who is due a tax refund as a result of an IRS audit or amendment of the taxpayer’s US tax return. Surprisingly, we often see this scenario arise in the context of offshore voluntary disclosures.

Sherayzen Law Office Successfully Completes its 2019 Fall Tax Season

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On October 15, 2019, Sherayzen Law Office, Ltd., successfully completed its 2019 Fall Tax Season. It was a challenging and interesting tax season. Let’s discuss it in more detail.

2019 Fall Tax Season: Sherayzen Law Office’s Annual Compliance Clients

Annual tax compliance is one of the major services offered by Sherayzen Law Office to its clients. The majority of our annual compliance clients are individuals and businesses who earlier retained our firm to help them with their offshore voluntary disclosures. They liked the quality of our services so much that they preferred our firm above all others to assure that they stay in full compliance with US tax laws.

It is natural that this group of clients is the largest among all other groups, because the unique specialty of our firm is conducting offshore voluntary disclosures.

A smaller group of our annual compliance clients consists of tax planning clients who also asked Sherayzen Law Office to do their annual compliance for them.

Finally, the last group of our annual compliance clients consists of businesses and individuals who were referred to our firm specifically for help with their annual compliance. These are usually foreign businesses who just expanded to the United States and foreign executives and professionals who just arrived to the United States to start working here.

2019 Fall Tax Season: Sherayzen Law Office’s Annual Compliance Services

Virtually all of our clients have exposure to foreign assets and international transactions. Hence, in addition to their domestic US tax compliance, Sherayzen Law Office prepares the full array of US international tax compliance forms related to foreign accounts (FBAR and Form 8938), PFIC calculations (Forms 8621), foreign business ownership and Section 367 notices (Forms 926, 5471, 8858, 8865, et cetera), foreign trusts (Form 3520 and Form 3520-A), and other relevant US international tax compliance issues.

2019 Fall Tax Season: Unique Challenges and Opportunities

The 2019 Fall Tax Season was especially challenging because of the record number of deadlines that needed to be completed. During the season, Sherayzen Law Office filed hundreds of FBARs, US income tax returns and US international tax returns such as Forms 3520, 5471, 8865, 8621 and 926.

The great time pressure created opportunities for our firm to further streamline our tax preparation and scheduling processes, ultimately creating an even more efficient yet still comprehensive and detail-oriented organization.

The 2019 Fall Tax Season was unique in one more aspect – the implementation of the 2017 tax reform changes. The 2017 Tax Cuts and Jobs Act (“TCJA” or “2017 tax reform”) introduced the most radical changes to the Internal Revenue Code since 1986. Form 1040 was greatly modified and numerous other US domestic tax laws and forms were affected.

The greatest change, however, befell the US international tax law, particularly US international corporate tax law. The introduction of GILTI (Global Intangible Low-Taxed Income) tax, FDII (Foreign-Derived Intangible Income) deduction, full participation exemption and many other rules and regulations has profoundly modified this area of law.

No form felt these changes greater than Form 5471. Due to the 2017 tax reform, it has almost tripled in size and has acquired a qualitatively new level of complexity. Many new questions appeared and only some of them were definitely resolved by the IRS in the summer of 2019 when it issued new regulations.

Since Sherayzen Law Office has a lot of clients who own partially or fully foreign corporations, Forms 5471 were a constantly-present challenge during the 2019 Fall Tax Season. Nevertheless, we were able to timely complete all Forms 5471 for all of clients. We were even able to develop and incorporate important strategic and tactical tax planning techniques, such as IRC Section 962 election, helping our clients lower their tax burden.

Looking Forward to Completing Offshore Voluntary Disclosures, End-of-Year Tax Planning and 2020 Spring Tax Season

Having completed such a difficult 2019 Fall Tax Season, Sherayzen Law Office now looks forward to working on the offshore voluntary disclosures and IRS audits through the end of the year. We also have a sizeable portfolio of end-of-year tax planning cases. Finally, we look forward to the 2020 Spring Tax Season for the tax year 2019.

If you have foreign assets or foreign income, contact Sherayzen Law Office for professional help. Our firm specializes in US international tax compliance. We have helped hundreds of US taxpayers to bring themselves into full compliance with US tax laws, and We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

2019 Minsk Seminar: US International Corporate Tax Reform | GILTI & FDII

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On August 28, 2019, Mr. Eugene Sherayzen, the owner and founder of Sherayzen Law Office, Ltd, gave a seminar at Minsk City Bar Association (“MCBA”) in Minsk, Belarus. The focus of the seminar was on the 2017 Tax Cuts and Jobs Act (“2017 TCJA” or “2017 tax reform”) changes in the US international corporate tax law. Let’s discuss this 2019 Minsk seminar in more detail.

2019 Minsk Seminar: Organizational Aspects

The 2019 Minsk seminar was held at a location owned by MCBA in Minsk, Belarus. The seminar was well-attended by Minsk lawyers of various specializations, not just tax attorneys. Mr. Sherayzen conducted the seminar in the Russian language.

2019 Minsk Seminar: Structure of the Seminar

The seminar consisted of four parts: introduction to Sherayzen Law Office’s international tax practice, discussion of five important concepts of US international tax law, explanation of certain aspects of US international business tax law prior to the 2017 tax reform and the 2017 TCJA changes to US international corporate tax law. Throughout the seminar, Mr. Sherayzen made certain digressions into individual international tax law as well as general business tax law in order to better explain certain aspects of the 2017 tax reform to the audience.

2019 Minsk Seminar: Sherayzen Law Office International Tax Practice

During the seminar, Mr. Sherayzen introduced his law firm, Sherayzen Law Office, Ltd., to the audience. He explained that the focus of his practice is on US international tax law. After explaining what “US international tax law” meant, the attorney described the four main sub-areas of his practice: offshore voluntary disclosures, IRS international tax audits, annual compliance and international tax planning.

2019 Minsk Seminar: Five Concepts

After describing his practice, Mr. Sherayzen discussed in detail five relevant concepts of US international tax law. He first introduced the concept of “US tax residency” and generally described the categories of US tax residents. In response to a question from an attendee, the attorney distinguished US tax residency from immigration residency.

Then, Mr. Sherayzen discussed the principle of worldwide income taxation of US tax residents. The fact that US tax residents must report their worldwide income even if they reside overseas caused consternation among some attendees.

The discussion of the concept of income recognition resulted in a lively exchange between the speaker and the audience. At that point, Mr. Sherayzen alluded that this topic would be relevant to the his explanation of the anti-deferral regimes during the second part of his lecture.

The rest of this part of the seminar focused on the taxation powers of the US congress and the source of income rules. The attorney introduced certain general source-of-income rules, but warned about the enormous amount of exceptions in this area of law.

2019 Minsk Seminar: Pre-Tax Reform US International Corporate Tax Law

Mr. Sherayzen adopted a general historical approach to the explanation of US international corporate tax law prior to the 2017 TCJA. He commenced with a description of the progression of law since the 1920s, explaining the incentives that existed for the accumulation of cash overseas. Then, the attorney discussed the modifications to the law enacted by Congress throughout the years in order to combat tax avoidance by US corporations.

At that point, Mr. Sherayzen introduced the two main anti-deferral regimes: Subpart F rules and PFIC rules. He explained these regimes in a general manner, warning the audience that there were many specific rules and exceptions to these general rules. The attorney also discussed why these two anti-deferral regimes failed to stop tax avoidance and the continued accumulation of corporate cash in foreign subsidiaries.

2019 Minsk Seminar: 2017 Tax Reform

The discussion of the 2017 TCJA consisted of three parts: (1) reasons for the reform; (2) new rules to combat tax avoidance; and (3) tax incentives with respect to returning production to the United States and exporting from the United States.

After introducing the audience to the historical and political context in which 2017 TCJA was enacted, Mr. Sherayzen discussed the new tax avoidance prevention rules, focusing on the Section 965 tax and Global Intangible Low-Taxed Income (“GILTI”) tax. Then, the attorney explained the new tax incentives introduced by the 2017 tax reform, including lower corporate tax rates, full participation exemption and Foreign-Derived Intangible Income (“FDII”).

2019 Minsk Seminar: Conclusion

At the end of the seminar, there was an extensive Q&A session. Questions ranged from re-classification of shareholder loans during an offshore voluntary disclosure to certain aspect of the 2017 tax reform and its impact on corporate restructuring.