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Ukrainian FATCA IGA Enters Into Force | FATCA Tax Lawyer & Attorney

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On November 18, 2019, the Ukrainian FATCA IGA entered into force. Sherayzen Law Office already wrote on this subject a little more than three years ago. This essay updates the status of the Ukrainian FATCA IGA.

Ukrainian FATCA IGA: Background Information

The Foreign Account Tax Compliance Act (FATCA) was enacted into law in 2010 and quickly caused a revolution in the area of international tax information exchange. While FATCA is very complex, its basic purpose is clear – improving US international tax compliance through new information reporting standards. The revolutionary aspect of FATCA was to force foreign financial institutions (“FFIs”) to comply these new information reporting standards through what essentially amounted to FATCA tax withholding penalties. In other words, FATCA turned FFIs throughout the world into IRS informants.

Using brutal economic force on the FFIs, however, may be considered by many foreign countries as a violation of their sovereignty, because FFIs are not US taxpayers. In order to enforce FATCA effectively, the United States has worked to enlist the cooperation of the FFIs’ home countries. The ultimate products of these negotiations have been FATCA implementation treaties, officially called FATCA IGAs (Intergovernmental Agreements). The Ukrainian FATCA IGA is just one example of such a treaty.

Ukrainian FATCA IGA: History and Current Status

On November 9, 2016, the Ukrainian government authorized the Ukrainian FATCA IGA for signature. On February 7, 2017, the IGA was signed. Since November 18, 2019, it has been in force.

Ukrainian FATCA IGA: Model 1 FATCA Agreement

The Ukrainian FATCA IGA is a Model 1 FATCA Agreement. In order to understand what this means, we need to explore the two types of FATCA IGAs – Model 1 and Model 2. The Model 2 FATCA treaty requires FFIs to individually enter into an FFI Agreement with the IRS in order to report the required FATCA information directly to the IRS (for example, Switzerland signed a Model 2 treaty).

On the other hand, the Model 1 treaty requires FFIs in a “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.

Thus, the Ukrainian FFIs will report FATCA information to the Ukrainian tax authorities first. Then, the Ukrainian IRS will turn over this information to the IRS.

Impact of Ukranian FATCA IGA on Noncompliant US Taxpayers

The implementation of the Ukrainian FATCA IGA means that the Ukrainian FFIs either have already implemented or will soon implement the necessary KYC (Know Your Client) procedures. Using these procedures, the FFIs will collect the required FATCA information concerning their US customers and send this information to the Ukranian tax authorities, which, in turn, will share this information with the IRS.

Then, the IRS will process this information in order to identify noncompliant US taxpayers. Once it reaches this point, the IRS will most likely investigate these persons and determine whether to conduct a civil audit or proceed with a criminal prosecution.

In other words, since November 18, 2019, US taxpayers who have undisclosed foreign accounts in Ukraine have been at an ever-increasing risk of the IRS detection. Once their noncompliance is verified by the IRS, these taxpayers, may face the imposition of draconian IRS penalties and potentially even a criminal prosecution.

Contact Sherayzen Law Office for Professional Help Undisclosed Ukrainian Foreign Accounts and Other Assets

If you have undisclosed Ukrainian assets (including Ukrainian bank accounts) and/or Ukrainian-source income, contact Sherayzen Law Office for professional help as soon as possible. We have successfully helped hundreds of US taxpayers around the globe (including Ukrainians) to resolve their past US tax noncompliance issues, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

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

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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.

2019 IRS Hiring Spree Targets US International Tax Compliance

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On May 11, 2019, the IRS Commissioner Chuck Rettig stated that the IRS is rapidly increasing the number of agents in certain divisions. US international tax compliance is the primary target of this 2019 IRS hiring spree.

2019 IRS Hiring Spree: Affected IRS Divisions

The Commissioner announced this news while speaking at the American Bar Association’s Section of Taxation conference in Washington, D.C. He stated that the Large Business and International (“LB&I), Small Business/Self-Employed (“SB/SE”) and Criminal Investigation (“CI”) divisions are the ones that form the core of the 2019 IRS hiring spree. Additionally, the Office of Chief Counsel and the Modernization and Information Technology Division are also beefing up their staff.

2019 IRS Hiring Spree: Why the IRS is Hiring New Agents

The Commissioner expressly mentioned two reasons for the 2019 IRS hiring spree – reducing the tax gap and assuring international compliance. Interestingly, he also mentioned that he will not allow the illegal tax shelter scandals, like the ones that happened in the 1980s, 1990s and 2000s, to happen on his watch.

The Commissioner went on to identify certain problematic areas where he wants the new hires to focus. He specifically listed: digital economy, transfer pricing, syndicated conservation easements, employment tax and cash-intensive businesses.

Finally, the Commissioner stated that he wants to expand the IRS message to the taxpayers who speak English as a second language. He said: “I’m from Los Angeles. In the grocery store in line there are more than six languages being spoken. This is 2019. We need to have our information available to every American trying to get it right.” He also shared that he was surprised when he found out that the IRS printed tax returns in only six languages.

The Commissioner emphasized that the IRS should not just print the returns in more languages, but also to provide IRS guidance in more languages. Also, he stated that the quality of translation services can be further improved. Undoubtedly, this will be the job of some of the new hires.

2019 IRS Hiring Spree: Consequences for Noncompliant Taxpayers with Foreign Assets and Foreign Income

The new IRS hiring spree means that there will be more audits and investigations of noncompliant taxpayers, including those who own foreign assets and receive foreign income. The fact that the Commissioner specifically mentioned illegal tax shelters and international tax compliance is a direct confirmation that taxpayers with offshore assets will soon be at an even higher risk of the IRS discovery of their tax noncompliance.

Furthermore, with more agents available, the IRS can expand the scope of its international tax audits. We can anticipate that there will be more audits with respect to Forms 3520/3520A (owners and beneficiaries of foreign trusts), 5471 (owners of a foreign corporation), 8621 (PFICs) and 8865 (owners of an ownership interest in a foreign partnership).

The IRS will also able to better utilize the piles of data it receives from foreign financial institutions under the Foreign Account Tax Compliance Act (“FATCA”) and bilateral automatic information exchange treaties. In other words, the IRS will be able to identify more noncompliant taxpayers.

Contact Sherayzen Law Office for Professional Help With Your Undisclosed Foreign Assets and Foreign Income

If you have undisclosed foreign assets and foreign income, you need to contact Sherayzen Law Office for professional help as soon as possible. Within just a few months, the IRS ability to locate you will expand much further than ever. If the IRS audits you or even just commences an investigation of your foreign assets, you may not be able to utilize the offshore voluntary disclosure options to reduce your FBAR and other IRS penalties.

Contact Us Today to Schedule Your Confidential Consultation!

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!

Italian Bank Accounts | International Tax Lawyer & Attorney New York New Jersey

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US tax requirements concerning Italian bank accounts can be quite burdensome and complex. The chief three US reporting requirements applicable to Italian bank accounts are: worldwide income reporting, FBAR and FATCA Form 8938. Let’s discuss each of these requirements in more depth.

Italian Bank Accounts: US Tax Residents and US Persons

Before we delve into the discussion of these requirements, we need to identify who is required to comply with these requirements. This task is complicated by the fact that each of aforementioned three requirements has its own definition of a required filer.

Nevertheless, we can readily identify the categories of required filers shared by all three requirements. These categories correspond most closely, but not exactly to the concept of US tax residents. “US tax residency” is a broad term which includes US citizens, US permanent residents, residents who satisfy the Substantial Presence Test and individuals who declare themselves as US tax residents.

This definition of a US tax resident is fully applicable to the worldwide income reporting requirement and very closely corresponds to the concept of the Specified Person of Form 8938. FBAR’s concept of “US Persons”, however, does differ more significantly from the definition of a “US tax resident”, but only in more unusual circumstances. The most common differences arise with respect to the treaty “tie-breaker” provisions to escape US tax residency and persons who declare themselves tax residents of the United States.

Additionally, I wish to caution the readers that even the definition of US tax residents which I just stated has a number of important exceptions, such as visa exemptions (for example, an F-1 visa five-year exemption for foreign students) from the Substantial Presence Test.

In other words, the issue of who the required filer is, requires careful analysis of the facts and circumstances of an individual. This is definitely the job of your international tax attorney; it is just too dangerous to attempt to do it yourself.

Italian Bank Accounts: Worldwide Income Reporting

All US tax residents must report their worldwide income on their US tax returns. In other words, US tax residents must disclose both US-source and foreign-source income to the IRS. In the context of the Italian bank accounts, foreign-source income means all bank interest income, dividends, royalties, capital gains and any other income generated by these accounts.

Italian Bank Accounts: FBAR Reporting

The official name of the Report of Foreign Bank and Financial Accounts (“FBAR”) is FinCEN Form 114. FBAR requires all US Persons to disclose their ownership interest in or signatory authority or any other authority over Italian bank and financial accounts if the aggregate highest balance of these accounts exceeds $10,000.

I wish to emphasize again that, while the term “US persons” is very close to “US tax residents”, it is not the same. The term “US tax residents” is slightly broader than “US persons”. I encourage you to search our website – sherayzenlaw.com – for articles concerning the definition of a US Person.

One aspect of the FBAR requirement, however, deserves a special mention here – the definition of an “account”. The FBAR definition of an account is substantially broader than how this word is generally understood in our society. “Account” for FBAR purposes includes: checking accounts, savings accounts, fixed-deposit accounts, investments accounts, mutual funds, options/commodity futures accounts, life insurance policies with a cash surrender value, precious metals accounts, earth mineral accounts, et cetera. In fact, whenever there is a custodial relationship between a foreign financial institution and a US person’s foreign asset, there is a very high probability that the IRS will find that an account exists for FBAR purposes.

Finally, no discussion of FBAR can be considered complete without mentioned the much-dreaded FBAR penalty system. It is complex and severe to an astonishing degree. The most feared penalties are criminal FBAR penalties with up to 10 years in jail (of course, these penalties come into effect only in the most egregious situations). The next layer of penalties are FBAR willful civil penalties which can easily exceed a person’s net worth. Finally, FBAR imposes penalties even on non-willful taxpayers.

All of the civil FBAR penalties have their own complex web of penalty mitigation layers, which depend on the facts and circumstances of one’s case. One of the most important factors is the size of the Italian bank accounts subject to FBAR penalties. Additionally, since 2015, the IRS has added another layer of limitations on the FBAR penalty imposition. These self-imposed limitations of course help, but one must keep in mind that they are voluntary IRS actions and may be disregarded under certain circumstances (in fact, there are already a few instances where this has occurred).

Italian Bank Accounts: FATCA Form 8938

FATCA Form 8938 has been in existence since 2011. Unlike FBAR, it is filed with a federal tax return and considered to be an integral part of the return. This means that a failure to file File 8938 may render the entire tax return incomplete and potentially subject to an IRS audit.

Form 8938 requires “Specified Persons” to disclose on their US tax returns all of their Specified Foreign Financial Assets (“SFFA”) as long as these Persons meet the applicable filing threshold. The filing threshold depends on a Specified Person’s tax return filing status and his physical residency. For example, if he is single and resides in the United States, he needs to file Form 8938 as long as the aggregate value of his SFFA is more than $50,000 at the end of the year or more than $75,000 at any point during the year.

The IRS defines SFFA very broadly to include an enormous variety of financial instruments, including foreign bank accounts, foreign business ownership, foreign trust beneficiary interests, bond certificates, various types of swaps, et cetera. In some ways, FBAR and Form 8938 require the reporting of the same assets, but these two forms are completely independent from each other. This means that a taxpayer may have to do duplicate reporting on FBAR and Form 8938.

Specified Persons consist of two categories: Specified Individuals and Specified Domestic Entities. You can find a detailed explanation of both categories by searching our website sherayzenlaw.com.

Finally, Form 8938 has its own penalty system which has far-reaching consequences for income tax liability (including disallowance of foreign tax credit and imposition of higher accuracy-related income tax penalties). There is also a $10,000 failure-to-file penalty.

Contact Sherayzen Law Office for Professional Help With the US Tax Reporting of Your Italian Bank Accounts

Worldwide income reporting, FBAR and Form 8938 do not constitute a complete list of US reporting requirements that may apply to Italian bank accounts. There may be many more.

This is why, if you have Italian bank accounts, should contact Sherayzen Law Office. We have a highly knowledgeable international tax compliance team headed by an experienced international tax attorney, Mr. Eugene Sherayzen. We have helped hundreds of US taxpayers with their US international tax issues, including reporting Italian bank accounts, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!