taxation law services

FBAR Tax Attorney St Louis: Another Swiss Banker Pleads Guilty to Tax Evasion

On March 12, 2014, the IRS and the DOJ announced that Andreas Bachmann, 56, of Switzerland, pleaded guilty to conspiring to defraud the Internal Revenue Service (IRS) in connection with his work as a banking and investment adviser for U.S. customers. It appears (at least from the perspective of an FBAR Tax Attorney St Louis) that Mr. Bachmann helped his U.S. customers conceal assets in secret Swiss Bank Accounts and other tax havens.

FBAR Tax Attorney St Louis: Background Information

In a statement of facts filed with the plea agreement, Mr. Bachmann admitted that between 1994 and 2006, while working as a relationship manager in Switzerland for a subsidiary of an international bank, he engaged in a wide-ranging conspiracy to aid and assist U.S. customers in evading their income taxes by concealing assets and income in secret Swiss bank accounts. Moreover, Mr. Bachmann traveled to the United States twice each year to provide banking services and investment advice to his U.S. customers (note from FBAR Tax Attorney St Louis: this could have been critical information for building the IRS case against Mr. Bachmann).

According to the IRS, Mr. Bachmann also engaged in cash transactions while traveling in the United States. In the course of arranging meetings with U.S. customers, some clients would request that Mr. Bachmann either provide them with cash as withdrawals from their undeclared accounts or take cash from them as a deposit to their undeclared accounts. As part of that process, Mr. Bachmann agreed to receive cash from U.S. customers and used that cash to pay withdrawals to other U.S. clients.

The IRS describes how, in one instance, Mr. Bachmann received $50,000 in cash from one U.S. customer in New York City and intended to deliver the money to another U.S. client in Southern Florida. Airport officials in New York discovered the cash but let Mr. Bachmann keep the money after questioning him (note from FBAR Tax Attorney St Louis: by that time, the IRS was probably already taking interest in Mr. Bachmann). The client in Florida refused to take the money after the client learned about the questioning by New York airport officials, and Mr. Bachmann returned to Switzerland with the $50,000 in cash in his checked baggage. Mr. Bachmann advised the executive management of the subsidiary about the incident with the cash.

The IRS further alleges that Mr. Bachmann also understood that a number of his U.S. customers concealed their ownership and control of foreign financial accounts by holding those accounts in the names of nominee tax haven entities, or structures, which were frequently created in the form of foreign partnerships, trusts, corporations or foundations.

FBAR Tax Attorney St Louis: IRS is Pleased

The IRS and the DOJ seem to be pleased with the result of their investigation. “Today’s plea is just the latest step in our wide-ranging investigations into Swiss banking activities and demonstrates the Department of Justice’s commitment to global enforcement against those that facilitate offshore tax evasion,” said Deputy Attorney General Cole. “We fully expect additional developments over the course of the coming months.”

Mr. Bachmann was charged in a one-count superseding indictment on July 21, 2011, and faces a maximum penalty of five years in prison when he is sentenced on August 8, 2014.

FBAR Tax Attorney St Louis: IRS and DOJ Are Stepping Up Criminal Enforcement of FBARs and International Tax Laws of the United States

As I predicted earlier, the IRS and the DOJ are in high gear of criminal enforcement of FBARs and international tax laws of the United States. As they work through the mountains of information that they received from the U.S. taxpayers participating in the Offshore Voluntary Disclosure Program (now closed) and the defendants, like Mr. Bachmann, I fully expect the enforcement efforts to increase in the near future.

Moreover, with the new information disclosed by the Swiss banks as part of the U.S. Department of Justice (“DOJ”) The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (the “Program”), the IRS will get an unprecedented new fountain of information that will allow it to reach ever further.

FBAR Tax Attorney St Louis: U.S. Taxpayers with Undisclosed Bank Accounts Should Consider Their Voluntary Disclosure Options As Soon As Possible

Given the fact that a large number of Swiss banks that participate in the Program will disclose all of their U.S.-held bank accounts by April 30, 2014 (assuming they have not already disclosed them), U.S. taxpayers with undisclosed accounts in Switzerland must act as soon as possible and consider their voluntary disclosure options. Failure to do so may result in the imposition of willful civil and even criminal penalties.

Contact Sherayzen Law Office for Help With Undisclosed Swiss Accounts

Sherayzen Law Office can help you with the voluntary disclosure of your Swiss accounts. Owner and attorney Eugene Sherayzen is an international tax expert in this field. He will thoroughly analyze the facts of your case and explain to you the available voluntary disclosure options. After you choose the voluntary disclosure option, our firm can prepare all legal documents and tax forms required for your voluntary disclosure, fully implement the ethically available strategies and rigorously defend your position against the IRS.

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Form 5472 Basics

Form 5472 (“Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business”) occupies a place of special importance for an international tax attorney. The chief reason is because, unlike most other international tax forms familiar to an international corporate tax attorney, Form 5472 deals with corporate activities directly in the United States. In particular, the Form is used to provide the IRS with required information (under Internal Revenue Code (IRC) Sections 6038A and 6038C) when a reporting corporation had reportable transactions with a foreign or domestic related party.

Form 5472 is also a form that is often overlooked by the taxpayers; this is why an international corporate tax attorney must be especially vigilant when it comes to U.S. corporations which are partially or fully owned by foreign persons. This is especially important for an international corporate tax attorney, because failure to file Form 5472 can lead to substantial penalties and the IRS has not been shy about imposing these penalties.

In this article, we will explain the basics of Form 5472, and the various penalties that may be imposed on corporations that fail to file the form or do not comply with other requirements. This article is not intended to convey tax or legal advice. U.S. international tax compliance and planning frequently involve many complex areas, and you are advised to consult an experienced tax attorney in these matters. Sherayzen Law Office, Ltd. can assist you in all of your tax and legal needs.

Reporting Corporation

Defining the “reporting corporation” is the first step in the analysis of an international corporate tax attorney. In general, for the purposes of Form 5472, a corporation is defined as “reporting corporation” if it is either: (1) a 25% foreign-owned U.S. corporation, or (2) a foreign corporation engaged in a trade or business within the U.S.

As an international corporate tax attorney, I can tell you that this is not where the issue ends. In addition to direct ownership, the IRC constructive ownership provisions will apply for determining Form 5471 ownership percentages. According to the IRS, a related party is defined to be, “Any direct or indirect 25% foreign shareholder of the reporting corporation, any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the reporting corporation, any person who is related (within the meaning of section 267(b) or 707(b)(1)) to a 25% foreign shareholder of the reporting corporation, or any other person who is related to the reporting corporation within the meaning of section 482 and the related regulations.” However, a related party does not include any corporation that is filing a consolidated tax return with the reporting corporation.

An international corporate tax attorney should be consulted in determining whether your corporation is a “reportable corporation” for Form 5472 purposes.

Reportable Transactions

As noted above, reporting corporations must file Form 5472 if they had a reportable transaction with a foreign or domestic related party. In general, a reportable transaction may cover a wide array of possible transactions.

First, reportable transactions include any type of transactions listed in Part IV of Form 5472 for which monetary consideration was the only consideration paid or received during the reporting corporation’s tax year for any of the following items: sales of stock in trade (inventory); rents or royalties received (for other than intangible property rights); sales, leases, licenses, etc., of intangible property rights; interest received; commissions received, and other categories.

Second, a reportable transaction also includes any type of transaction (or group of transactions) listed in Part V, if any part of the consideration paid or received was not monetary consideration, or in cases where less than full consideration was paid or received.

Whether you have a reportable transaction is a very complex topic; this is why you need to consult an international corporate tax attorney to deal with this issue. I strongly advise against a “do it yourself” attitude in this matter.

Form 5472 Penalties

Several penalties may be imposed for failure to meet various requirements for Form 5472. First, the IRS may assess a failure to file penalty of $10,000 on any reporting corporation that fails to file Form 5472 when due and under the proper compliance requirements (this is the most common penalty that an international corporate tax attorney is likely to see). Note, filing a substantially incomplete Form 5472 will also constitute a failure to file Form 5472 for the purposes of the penalty.

Furthermore, failure by a reporting corporation to maintain records (as required under IRS Regulations section 1.6038A-3), will be deemed to be a failure to file. As an international corporate tax attorney, I often see this penalty imposed in conjunction with other Form 5472 penalties.

There is a further complication: each member of a group of corporations filing a consolidated information return is treated as a separate reporting corporation subject to a separate $10,000 penalty, and each member is jointly and severally liable for such penalty.

Third, if a reporting corporation fails to file Form 5472 for more than 90 days after notification by the IRS, an additional penalty of $10,000 will apply. According to the IRS, “This penalty applies with respect to each related party for which a failure occurs for each 30-day period (or part of a 30-day period) during which the failure continues after the 90-day period ends.”

Finally, in addition to the civil penalties, criminal penalties under IRC sections 7203 (“Willful failure to file return, supply information, or pay tax”), 7206 (“Fraud and false statements”), and 7207 (“Fraudulent returns, statements, or other documents”), may also apply if the reporting corporation fails to submit required information or files false or fraudulent information.

Contact Sherayzen Law Office for Professional Help With Forms 5472

As you can see, filing Form 5472 is not a trivial matter and requires the expertise of an international corporate tax attorney. If you are required to file Form 5472, contact the experienced international corporate tax law firm of Sherayzen Law Office.

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International Tax Planning Lawyers: Importance of Business Purpose Doctrine

It is surprising how often international tax planning lawyers ignore the importance of business purpose doctrine to international tax planning. It seems that a lot of U.S. accountants and, to a smaller degree, attorneys have been limited to the parochial view of the application of the doctrine within the borders of the United States, whereas they seem to lose caution in the context of international business transactions. In this article, I urge the readers to consider the very important role of the business purpose doctrine to international tax planning.

International Tax Planning Lawyers: Business Purpose Doctrine; Combination with the Economic Substance Doctrine

This short writing does not pretend to do justice to the complex analysis of the history, development and interpretation of the business purpose doctrine. I will merely attempt to broadly sketch some important points and the general meaning of the doctrine to provide the necessary background to the discussion below.

The Business Purpose Doctrine (“the Doctrine”) is often cited to have originated in the old Supreme Court case Gregory v. Helvering, 293 U.S. 465 (1935) (even though, upon detailed consideration, it appears that this case stands for a much more limited proposition than the current Doctrine). In reality, the modern Doctrine received a much broader development in the seminal case of Goldstein v. Commissioner, 364 F.2d 734 (2d Cir. 1966), which incorporates the economic substance doctrine into the Doctrine.

The combined effect of both legal developments can be summarized as a two-prong test which says that the IRS will respect a business transaction if: (1) the transaction has objective economic substance (i.e. whether transaction affected the taxpayer’s financial position in any way); and/OR (2) the taxpayer has a subjective non-tax business purpose for conducting the transaction (i.e. whether the transaction was motivated solely by tax avoidance considerations to such a degree that the business purpose is no more than a facade). Notice, the capital “OR” – there is a disagreement among the courts on whether the both, subjective (business purpose doctrine) and objective (economic substance doctrine) prongs should be satisfied, or is it enough that one of them is satisfied.

International Tax Planning Lawyers: the Doctrine is Relevant to International Tax Planning

The application of the Doctrine has been extremely important to International Tax Planning, and international tax planning lawyers should take care to make sure that their tax plans are not merely done for tax avoidance purposes, but reflect the real business purpose behind engaging into the transaction. Moreover, the international tax planning lawyers should impress upon their clients this understanding of importance of the Doctrine to the tax consequences of their business transactions.

A recent IRS victory stand as a stark reminder of the importance of the Doctrine and why international tax planning lawyers must not ignore it. In Chemtech Royalty Associates , L.P. v. United States of America (February of 2013), the federal district court in Louisiana rejected two separate tax shelter transactions entered into by The Dow Chemical Company (“Dow Chemical”) that purported to create approximately $1 billion in tax deductions.

The first transaction rejected by Chief Judge Jackson was created by Goldman Sachs and basically allowed Dow Chemical to claim royalty expense deductions on its own patent through a scheme called Special Limited Investment Partnerships (“SLIPs”). The basic idea behind SLIPs is to create a tax shelter known as a “lease-strip” – the U.S. taxable income is stripped away to a non-US partnership. In the process, some small Swiss tax was paid, but only minor U.S. tax consequences were triggered on Dow Chemical’s US tax return.

The second transaction that was rejected by Chief Judge Jackson involved depreciation by Dow Chemical of a chemical plan asset that had already, for the most part, been fully depreciated. The second scheme (created by King & Spalding) arose due to changes in U.S. tax law which made the first transaction unprofitable from the tax standpoint.

While the economic substance was not the only doctrine discussed by court (the Sham Partnership Doctrine played a large role in the decision as well), it certainly occupied the central role in the decision.

The end result for Dow Chemical – disallowance of $1 billion of deductions and an imposition of 20% penalty (i.e. $200 million) plus interest. As the readers can see, it is highly important for international tax planning lawyers to pay attention to the Doctrine.

Contact Sherayzen Law Office for Professional Help with International Tax Planning

While the precedent-setting cases usually involve large corporations, international tax planning concerns any company that does business internationally. Equally important for all companies is to make sure that they comply with all of the numerous complex U.S. tax reporting requirements concerning international business transactions.

If you have a substantial ownership interest in or an officer of a small or mid-size company that does business internationally, contact Sherayzen Law Office for professional help with international tax planning and compliance. Attorney Eugene Sherayzen will thoroughly analyze your case, create an ethical business tax plan to make sure that you do not over-pay taxes under the Internal Revenue Code provisions, and prepare all of the tax and legal documents that are required for your U.S. tax compliance.

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Letters from Swiss Banks: What Should You Do?

Since the last quarter of 2013, an increasing number of U.S. taxpayers with accounts in Swiss banks have received letters from Swiss Banks regarding participation in the U.S. Department of Justice (“DOJ”) The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (the “Program”). It is very important to react to these letters in a thoughtful yet rapid manner.

Letters from Swiss Banks: What They Usually Say

In these letters from Swiss Banks, the taxpayers are typically advised (sometimes with the somewhat offensive phrase “as you almost certainly know”) of the fact that their Bank will participate in the Program and disclose the taxpayer’s accounts in Switzerland. Then, the letters typically discuss three issues (note: different banks would follow different format, but the essence is the same).

First, the letters from Swiss Banks ask the taxpayer to confirm whether he has already properly disclosed their Swiss bank accounts to the IRS. Some banks, like Banque Cantonale Vaudoise (“BCV”) even go as far as asking the taxpayers to confirm that other international tax compliance forms, such as Forms 5471, 3520 and, surprisingly, PFIC Form 8621, have also been filed with the IRS. Other banks just ask for some sort of documentation that everything has been properly declared to the IRS.

Then, the letters from Swiss Banks ask the taxpayers are asked to verify if his Swiss bank accounts were disclosed as part of the official IRS Offshore Voluntary Disclosure Program (“OVDP”) now closed.

Finally, the letters from Swiss Banks inform the taxpayers with undisclosed Swiss Bank accounts about the existence of the OVDP and propose such actions for the readers as considering to enter into the OVDP, obtaining more information about the OVDP from the Bank, and, finally, offering to provide the necessary bank statements for the taxpayer to enter the OVDP. Some banks (for example, Nue Privat Bank) will even later offer to supply the tax information (though, these reports should be approached with a great deal of skepticism because these statements could contain a number of mistakes, such as failure to recognize the application of PFIC rules). Most letters from Swiss Banks also provide space for the taxpayers to express their consent to the disclosure of their undisclosed Swiss bank and financial accounts to the IRS.

Consequences for U.S. Taxpayers Who Received Letters from Swiss Banks

It is difficult to overstate the great impact that these letters from Swiss Banks may have on the taxpayer’s position. I want to concentrate on two most important effects of the letters from Swiss Banks. First and foremost, they provide notice to the taxpayer about the requirement to disclose their Swiss bank and financial accounts (and, in case of BCV and some other banks, other foreign assets such as business ownership) to the United States. Even if a taxpayer simply did not know about the FBAR requirement in the past, his behavior as a result of receiving these letters from Swiss Banks will now be subject to scrutiny – failure to act on these letters for a long time and willful disregard of them may change the taxpayer’s position from non-willful to willful, subjecting him to draconian FBAR willful penalties, including opening the possibility of criminal penalties to be applied.

Second, upon fulfilling the Notice requirement with these letters, the Swiss banks are free to disclose certain information to the IRS under the US-Swiss FATCA treaty. Once the IRS receives such information from the Swiss Banks, the exposed U.S. taxpayers most likely will not be able to participate in the OVDP.

Hence, once the taxpayers receive these letters, time becomes a crucial factor, because, if the decision to enter the OVDP is made by these taxpayers, it should be implemented as soon as possible.

What Should You Do Upon Receipt of Letters from Swiss Banks?

Your initial response to the letters from Swiss Banks may determine the entire course of your case.

1. Consult an International Tax Attorney

The first and most crucial step is not to panic and contact an international tax attorney who specializes in the voluntary disclosure of the foreign bank and financial accounts as well as other assets.

I want to emphasize that you need to contact an experienced international tax attorney, not an accountant. Offshore voluntary disclosure is a legal issue and its venue should be determined by an attorney, not an accountant. I have seen too many cases where accountants horribly mishandled their clients’ cases (on both strategic and tactical issues) because the accountants overstep the limitations of their profession and enter the world of legal advice.

The geographic location of your international tax attorney should not matter; a much more important factor should be the attorney’s experience in the case and you personal feeling of trust. If the attorney immediately advises you to enter the OVDP program without even considering the facts of your case, consider it a red flag and seek second opinion.

2. Try to Obtain As Much Information As Possible While Preparing for the Initial Consultation

During the initial consultation, the attorney will have no choice but to rely on you for the initial information required to assess the state of your case. So, try to get as much information as possible regarding your foreign bank accounts while preparing for the initial consultation.

3. Retain an International Tax Attorney to Handle Your Case According to the Proposed Strategy

After the initial consultation, you should have a pretty good idea of what your options are. Think about these options and the attorney’s recommendations, but not take too much time to do so (remember, time is of the essence in these cases). Make your decision and retain an international tax attorney that you like for your case.

Contact Sherayzen Law Office for Professional and Experienced Legal Help With the Voluntary Disclosure of Your Swiss Bank Accounts

As soon as you receive your letters from Swiss Banks, contact Sherayzen Law Office for professional legal and tax help with your voluntary disclosure. Our experienced international tax law firm has helped numerous U.S. taxpayers with the voluntary disclosure of their Swiss bank and financial accounts as well as other foreign assets.

We can help you! Contact Us to Schedule a Confidential Consultation Now.

Second Quarter of 2014 IRS Underpayment and Overpayment Interest Rates

On March 14, 2014, the IRS announced that the underpayment and overpayment interest rates will remain the same for the calendar quarter beginning April 1, 2014. The rates will be:

three (3) percent for overpayments [two (2) percent in the case of a corporation];
three (3) percent for underpayments;
five (5) percent for large corporate underpayments; and
one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

Interest factors for daily compound interest for annual rates of 0.5 percent are published in Appendix A of Revenue Ruling 2011-32. Interest factors for daily compound interest for annual rates of 2 percent, 3 percent and 5 percent are published in Tables 7, 9, 11, and 15 of Rev. Proc. 95-17, 1995-1 C.B. 561, 563, 565, and 569.