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Finnish US Bank Accounts Face IRS John Doe Summonses | FATCA News

On May 1, 2019, the United States District Court for the Western District of North Carolina (the “Court”) authorized the IRS to serve John Doe Summonses seeking information about Finnish residents who own secret US bank accounts (collectively Finnish US Bank Accounts). Let’s discuss this development concerning Finnish US bank accounts in more depth.

Finnish US Bank Accounts Targeted by the Finnish Tax Administration.

This whole case is about the Finnish government’s efforts to identify noncompliant Finnish taxpayers who failed to disclose income related to their non-Finnish bank accounts. Specifically, the Finnish Tax Administration (“FTA”) identified bank accounts in the United States owned by Finnish tax residents as one of the primary targets in its tax enforcement campaign.

The reason why Finland cannot identify the affected individuals itself is because, in circumstances where the payment cards are used only at ATMs or in other transactions where authorization is by PIN code, and the cardholder need not identify himself or herself to the merchant, the cardholders cannot be identified from sources in Finland. Earlier FTA investigations of approximately 120 to 150 Finnish taxpayers who used foreign payment cards in a similar manner have yielded extremely high rates of tax non-compliance, as noted in the United States’ memo in support of the petition, which indicates that it is likely that the John Does sought by the summons are Finnish residents who are failing to report these foreign accounts and associated income.

Hence, the FTA asked the US Department of Justice (“DOJ”) and the IRS for help as prescribed by the tax treaty between Finland and the United States. The treaty provides for cooperation in exchanging information that is necessary for enforcement each of the signatory’s tax laws.

The DOJ and the IRS readily agreed. Then, the DOJ filed a petition in the Court asking for it to grant the IRS a permission to issue John Doe Summonses in response to the FTA’s request for help.

Finnish US Bank Accounts: Affected US Financial Institutions

The IRS Summonses specially target persons who reside in Finland and have Bank of America, Charles Schwab or TD Bank payment cards linked to bank accounts located outside of Finland. It is important to note that the DOJ does not allege that Bank of America, Charles Schwab or TD Bank violated any US or Finnish laws with respect to these accounts.

Finnish US Bank Accounts: Information Targeted by the IRS John Doe Summonses

The IRS John Doe Summonses seek the identities of Finnish residents who have payment cards linked to bank accounts located outside of Finland so that the Finnish government can determine if those persons have complied with Finnish tax laws.

Finnish US Bank Accounts: Foreign Individuals With Secret US Bank Accounts Are Not Safe from Disclosure to Their Governments

The recent IRS John Doe summonses concerning Finnish US bank accounts is another indication that foreign individuals with secret US bank accounts are not immune from the disclosure of these accounts to their governments at home. In fact, the US government will cooperate with requests for such information, at least from friendly governments.

“The Department of Justice and the IRS are committed to working with the United States’ international treaty partners to identify and stop individuals using hidden offshore accounts to evade tax laws,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “The United States does not tolerate offshore tax evasion, nor does it sanction tax evasion committed through U.S. financial institutions.”

This cooperation also stems from the desire to somehow thank the foreign government for their prior cooperation with the IRS tax enforcement efforts that targeted (and continue to target) US taxpayers with undisclosed foreign bank accounts. “Our continued success in combating offshore tax noncompliance has been helped by the assistance we receive through the network of tax treaties around the globe,” said IRS Commissioner Charles Rettig. “Yesterday’s effort reflects that the U.S. will return this help by working under the law with tax administrators in other nations to help them in their fight against tax evasion and avoidance. A global economy should not be allowed to serve as a possible vehicle for tax evasion in any country.”

Sherayzen Law Office has predicted in the past that, after FATCA, the global tax enforcement will become tighter and more cooperative. Our predictions turned out to be correct.

CRS Success: 47 Million Financial Accounts Reported | FATCA Lawyer News

On June 7, 2019, the Organization for Economic Cooperation and Development (“OECD”) announced that countries shared information concerning 47 million financial accounts under the OECD’s Common Reporting Standard (“CRS”). Let’s explore this CRS success in more detail.

Measuring CRS Success: What is CRS?

CRS can be called the response of the rest of the world to the Foreign Account Tax Compliance Act (“FATCA”), a groundbreaking piece of US legislation that became a law in 2010. The idea behind the CRS is the same as that of FATCA – to combat tax evasion that utilizes secret foreign accounts through automatic information exchange between the member-countries concerning these accounts.

CRS was developed in 2014 as the information exchange standard for the Automatic Exchange of Information (“AEOI”) Agreements. Legally, CRS is based on the multilateral Convention on Mutual Administrative Assistance in Tax Matters, but it is the standard in the bilateral AEOI agreements as well. The first reporting under the CRS occurred in 2017.

The United States has refused to information exchange under the CRS. This is an egoistical position – CRS does not substantially help the IRS in its combat against tax evasion; the US government believes that FATCA already provides the IRS with all of the information that it needs. Moreover, the CRS would require the United States to disclose information concerning domestic accounts owned by foreigners, thereby endangering the US “tax haven” appeal. Finally, there is a practical aspect of paying for the implementation of the CRS.

Measuring CRS Success: Account Information Shared

On June 7, 2019, OECD shared some actual data concerning the impact of CRS on information exchange. This announcement was made in Fukuoka, Japan, right before the G20 meeting of finance ministers. The results are extraordinary: the participating countries shared information concerning 47 million foreign accounts, which comprise $5.5 trillion or €4.9 trillion. The OECD already called CRS as the “largest exchange of tax information in history.”

Measuring CRS Success: Voluntary Disclosure Programs

Prior to the implementation of the CRS, many participating countries offered their taxpayers a chance to remedy their past noncompliance through a voluntary disclosure program. These programs turned out to be a great success.

Fearing disclosure under the CRS, about 500,000 account holders revealed more than €95 billion in offshore funds. OECD believes that the responsibility for such a huge success of voluntary disclosure programs should be attributed to the CRS; i.e. these disclosures were “early evidence of taxpayer behavioral responses” to the potential future information exchanges.

Measuring CRS Success: Drop in Tax Haven Investments

Another measure of the CRS success is its impact on the deposits in jurisdictions identified by the OECD as tax havens. The International Monetary Fund reported a 34% decline since 2008 in the tax haven deposits by individuals and corporations. The OECD believes that as much as two-thirds of this decline should be attributed to the CRS.

Offshore Bank Accounts Remain on the IRS 2019 Dirty Dozen List

On March 15, 2019, the IRS announced that it will keep undisclosed offshore bank accounts on its 2019 Dirty Dozen list.

2019 Dirty Dozen List: Background Information

The “Dirty Dozen” list is complied annually by the IRS. It consists of common tax scams and noncompliance schemes that the IRS prioritizes in its enforcement efforts. Many of these scams and schemes peak during the tax filing season, but offshore evasion is present throughout the year.

2019 Dirty Dozen List: Offshore Evasion Remains a Priority for the IRS

Despite many years of an intense focus on this area, the IRS still priorities its enforcement efforts in the area of offshore evasion. “Offshore evasion remains a primary focal point of overall IRS enforcement efforts,” said IRS Commissioner Chuck Rettig. “Our Criminal Investigation and civil enforcement teams work closely with the Justice Department in the international arena to ensure our nation’s tax laws are followed. Taxpayers considering hiding funds or assets offshore should think twice; the civil penalties and criminal sanctions can be severe.”

2019 Dirty Dozen List: Undisclosed Offshore Bank Accounts May Lead to Criminal Prosecution and Imposition of Huge Civil Penalties

This is very much true. Over the years, the IRS has conducted thousands of offshore-related audits that resulted in the imposition of multimillion-dollar civil penalties as well as additional tax liability. Moreover, the IRS has also been very active in pursuing criminal penalties, which resulted in the collection of billions of dollars in criminal fines and restitution.

Many of these cases involved undisclosed offshore bank accounts. In fact, the IRS has expressly warned noncompliant taxpayers that hiding income in undisclosed offshore bank accounts may result in significant penalties as well as criminal prosecution.

2019 Dirty Dozen List: Common Schemes Involving Undisclosed Offshore Bank Accounts

The IRS has identified numerous schemes that involve undisclosed offshore bank accounts. The most simple of them (and the one that is becoming increasingly rare) is the direct ownership of secret offshore bank accounts and brokerage accounts. The more sophisticated schemes use nominee entities and prepaid debit cards. The most complicated schemes often involve foreign trusts, employee-leasing schemes, private annuities and insurance plans.

The IRS has emphasized that it is not illegal to have offshore bank accounts, foreign business entities and foreign trusts. All of these foreign assets, however, must be disclosed and the appropriate US taxes must be paid.

2019 Dirty Dozen List: How the IRS Finds Out About Schemes In order to Prosecute Noncompliant Taxpayers

There are many different ways for the IRS to find out about undisclosed offshore accounts and schemes that involve such accounts. Let’s briefly review the top four of them. First, the IRS has built up a significant pile of information from prior prosecutions of taxpayers with undisclosed foreign accounts as well as bankers and other financial experts suspected of helping clients hide their assets overseas. Each new audit and prosecution continues to bring in more information.

Second, the IRS also received a huge amount of information from US taxpayers who participated in the different versions of the IRS Offshore Voluntary Disclosure Program (“OVDP”) during 2004-2018 as well as Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures. OVDP has been particularly helpful, because it involved a large number of taxpayers who could be classified as willful in their prior noncompliance.

Third, the IRS has also obtained very sophisticated information concerning offshore schemes from the Swiss Bank Program. As part of this program, Swiss banks disclosed their strategies for using undisclosed offshore bank accounts to hide income overseas.

Finally, as a result of the implementation of the Foreign Account Tax Compliance Act (“FATCA”) and the network of Intergovernmental Agreements (“IGAs”), there is a continuous and automatic flow of information concerning US-owned accounts from third parties to the IRS.

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

The fact that undisclosed offshore bank accounts remain on the 2019 Dirty Dozen list demonstrates the IRS commitment to fighting tax noncompliance in this area. As a result of the information collection efforts by the IRS, US taxpayers with undisclosed foreign accounts are at a severe risk of discovery by the IRS.

This is why, if you have undisclosed foreign assets or foreign income, you should contact Sherayzen Law Office for professional help as soon as possible. We have helped hundreds of US taxpayers around the world with their offshore voluntary disclosures, and We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

US Taxpayers with Lombard Odier Bank Accounts At Risk | OVDP News

On July 31, 2018, the US Department of Justice (“DOJ”) announced that it signed an Addendum to a non-prosecution agreement with Bank Lombard Odier & Co., Ltd. (“Lombard Odier). The Addendum requires Lombard Odier to disclose additional 88 accounts; in other words, US taxpayers who own these additional Lombard Odier bank accounts are now at a high risk of a criminal prosecution by the IRS.

Lombard Odier Bank Accounts: Background Information on the Swiss Bank Program and Original Non-Prosecution Agreement

The new Addendum to the non-prosecution agreement was signed by Lombard Odier as part of the Swiss Bank Program that was created by the DOJ on August 29, 2013. The Swiss Bank Program is basically a voluntary disclosure program for Swiss banks, which allows the banks to avoid potential criminal prosecution for helping US taxpayers evade US tax laws (the so-called Category 2 banks). As part of their voluntary disclosure, the participating banks were required, among other things, to provide all of the required information concerning bank accounts owned (directly or indirectly) by US taxpayers. The information was provided on an account-by-account basis, rather than per taxpayer.

Overall, the DOJ executed non-prosecution agreements with 80 banks between March of 2015 and January of 2016, collecting $1.36 billion in penalties. Lombard Odier signed the original non-prosecution agreement on December 31, 2015, and paid $99 million in penalties.

Addendum to the Original Agreement Concerning Additional 88 Lombard Odier Bank Accounts

It appears that, when the original non-prosecution agreement was signed, Lombard Odier failed to account for certain additional accounts owned by US persons. The bank later realized its mistake and disclosed it to the DOJ.

As a result of this disclosure, the July 31, 2018 Addendum to the original non-prosecution agreement was signed. Under the Addendum, Lombard Odier will pay the additional sum of $5,300,000 and disclose 88 additional Lombard Odier bank accounts owned by US persons.

Impact of the Addendum on US Taxpayers With Undisclosed Lombard Odier Bank Accounts

The Addendum means that the IRS now has knowledge of additional 88 Lombard Odier bank accounts that were not previously disclosed. US owners of these accounts are now at a risk of willful FBAR penalties and potential criminal prosecution if they have not yet entered into an IRS voluntary disclosure program. A quiet disclosure of these accounts will not suffice to protect these taxpayers against the IRS criminal prosecution.

Contact Sherayzen Law Office for Help With the Disclosure of Your Lombard Odier Bank Accounts and Any Other Foreign Bank Accounts

If you are the owner of any of the 88 Lombard Odier bank account or if you have other undisclosed foreign bank accounts, contact the experienced legal team of Sherayzen Law Office. We have helped hundreds of US taxpayers around the world to bring their undisclosed foreign assets, including foreign bank and financial accounts, into full compliance with the US tax laws. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

2018 FSI Ranks United States as Second Largest Secrecy Haven | FATCA

Paradoxically, while demanding that other countries comply with FATCA, the United States itself has become the second largest secrecy haven in the world according to the Financial Secrecy Index (“FSI”) released by the Tax Justice Network (“TJN”) at the end of January of 2018. Let’s explore why the 2018 FSI considers the United States a Tax Haven.

What is 2018 FSI?

The TJN’s FSI is considered to be one of the most comprehensive assessments of secrecy of financial centers. It is published every two years using independently verifiable data. Its methodology is based on the European Commission’s Joint Research Center. The 2018 FSI, however, is not considered to be influenced by any political considerations.

The FSI is based on various criteria which is updated with each publication. The assessment of a country’s financial secrecy includes such consideration as: requirement to identify beneficial owners of companies, trusts and foundations; whether annual registries are made available to the public in an online format; the extent to which the countries’ financial secrecy rules are forced to comply with the anti-money laundering standards, and so on.

In order to create the index, a secrecy score is combined with a figure representing the size of the offshore financial services industry in each country. This is expressed as a percentage of global exports of financial services. The responsibility for bigger transparency increases with the size of the financial services industry of a country.

In 2018, new indicators where added to what are now considered 20 Key Financial Secrecy Indicators “KFSI”. The 2018 FSI new factors ask whether a jurisdiction in question provides for public register of ownership and annual accounts of limited partnerships; public register of ownership of real estate; public register of users of freeports for the storage of high value assets; protection against prison for banking whistleblowers; harmful tax residency and citizenship rules; and other factors.

2018 FSI Placed United States as Second Largest Secrecy Haven Among the Top 10 Countries

Based on the consideration of all of these factors, including KFSI, the 2018 FSI placed United States as the second largest secrecy haven among the top ten countries. Here is the full list of top ten countries:

1. Switzerland
2. United States
3. Cayman
4. Hong Kong
5. Singapore
6. Luxembourg
7. Germany
8. Taiwan
9. UAE
10. Guernsey

What this means is that the United States is now the country that, with the exception of Switzerland, most contributes to financial secrecy in the world.

Reasons Behind the US Rise in the 2018 FSI Ranking

The second rank of the United States was assigned due to its growing share of the offshore financial services industry. According to 2018 FSI, the US market share of the offshore financial services industry is 22.3%. It was 19.6% in 2015. In fact, in order to occupy the second place in the 2018 FSI, the United States displaced such a notorious offshore haven as the Cayman Islands.

There are other objective reasons and comparative reasons for the US rise to the second place of the 2018 FSI. The main comparative reason is the European Union’s lead in the transparency initiatives. The EU is now the definite leader in combating financial secrecy.

The objective reasons are various. The United States does not have any beneficial ownership registries. It also lacks the country-by-country reporting of corporate profits (although, this may change). Finally, the United States continues to refuse to join the OECD’s Common Reporting Standard (“CRS”).

The Second Place in the 2018 FSI Points to Dubious Cost-Benefit Analysis

The second place in the 2018 FSI is not accidental. Rather, there is a cold, though morally dubious, cost-benefit calculation behind it. On the one hand, the United States was the country that really propelled the global fight against bank secrecy in the years 2008-2014. It trampled all over the vaulted Swiss Bank Secrecy laws when it came to its pursuit of US tax evaders, enacted the revolutionary FATCA legislation, forced the vast majority of foreign financial institutions to share information (including beneficial ownership information) with the IRS concerning US owners of foreign accounts, and engaged in a number of other activities to increase the worldwide financial transparency with respect to US taxpayers.

On the other hand, all of the US efforts to combat bank secrecy were not a fight for transparency ipso facto. Rather, the US government was only interested in fighting bank secrecy in so far as it concerned US taxpayers. With respect to its own bank secrecy laws concerning foreigners who wish to invest in the United States, the US government is on par and even exceeds some of the most secretive tax havens.

In other words, when it comes to fighting US tax evasion, the US government is an innovative champion. With respect to attracting investment in the United States, the same US government seems to do everything possible to turn the United States into a tax haven. This is precisely why it never joined the CRS.

While the US government seems to be acting in the name of the national self-interest, there is one huge problem that this policy creates. Currently, the elites of the most corrupt regimes, mafias and cartels of all stripes, narcotics dealers and other criminals can see the advantage of using the United States as a haven for illicit financial flows, including money laundering and funding of terrorism. There is also an increased danger that the corruption created by one part of the US financial policy may spread to other aspects of our society.

In other words, the current US bank secrecy policy seems to be in contradiction with other stated policies which attempt to specifically target the aforementioned criminal activities. This contradiction is an easy target for critics of the US financial policy and may contribute in the future to potential reversals of the current gains in international financial transparency.

Sherayzen Law Office will continue the monitor the developments in the US bank secrecy laws.