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Offshore Bank Accounts Remain on the IRS 2019 Dirty Dozen List

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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

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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

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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.

Ukrainian FATCA Agreement Authorized for Signature

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On November 9, 2016, the Ukrainian government authorized the Ukrainian FATCA Agreement for signature. Let’s explore this new development in more depth.

Ukrainian FATCA Agreement and FATCA Background

The Ukrainian FATCA Agreement is one of the many bilateral FATCA implementation agreements signed by the great majority of jurisdictions around the world. The Foreign Account Tax Compliance Act (FATCA) was enacted into law in 2010 and quickly became the new standard for international tax information exchange.

FATCA is extremely complex, but its core purpose is very clear – increased US international tax compliance (with higher revenue collection) by imposing new reporting requirements on US taxpayers and especially foreign financial institutions (FFIs). Since FFIs are not US taxpayers, the United States has been working with foreign governments to enforce FATCA through negotiation and implementation of FATCA treaties. The Ukrainian FATCA Agreement is just one more example of these bilateral treaties.

Ukrainian FATCA Agreement is a Model 1 FATCA Agreement

There are two types of FATCA treaties – Model 1 and Model 2. Model 2 FATCA treaty requires FFIs to individually enter into a FFI Agreement with the IRS to report the required FATCA information directly to the IRS (for example, Switzerland signed a Model 2 treaty).

On the other hand, Model 1 treaty requires FFIs in the “partner country” (i.e. the country that signed a Model 1 FATCA agreement) to report the required FATCA information regarding US accounts to the local tax authorities. Then, the tax authorities of the partner country share this information with the IRS.

The Ukrainian FATCA Agreement is a Model 1 FATCA Agreement.

When will the Ukrainian FATCA Agreement Enter into Force?

The Ukrainian FATCA Agreement will enter into force once Ukraine notifies the US government that it has completed all of the necessary internal procedures for the ratification of the Agreement.

What is the Impact of Ukranian FATCA Agreement on Noncompliant US Taxpayers?

The implementation of the Ukrainian FATCA Agreement will mean that the Ukrainian government will force its FFIs to identify all of the FATCA information regarding their US accountholders and share this information with US government.

This further means that any US taxpayers who are currently noncompliant with the US tax reporting requirements (such as FBAR, Form 8938, foreign income reporting, et cetera) are now at an ever increasing risk of detection by the IRS and the imposition of draconian IRS penalties.

Contact Sherayzen Law Office for Help With US Tax Compliance in light of the Ukrainian FATCA Agreement

If you have undisclosed Ukrainian assets (including Ukrainian bank accounts) and Ukrainian foreign income, contact Sherayzen Law Office for help as soon as possible. We have helped hundreds of US taxpayers around the globe (including Ukrainians) to bring their US tax affairs in order and we can help you!