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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.

Specified Individual | FATCA International Tax Lawyers and Attorneys

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Specified Individual is a key tax term that must be correctly understood in order to properly identify the persons who are required to file FATCA Form 8938. In this brief article, I will describe the general definition of a Specified Individual for Form 8938 purposes.

Specified Individual: FATCA Form 8938 Background

In 2010, one of the most important events in modern history of US taxation happened – the passage and signing of the Foreign Account Tax Compliance Act or FATCA. FATCA completely revolutionized the entire landscape of international tax law, elevating the international exchange of tax-related and account-related information to an unprecedented level. FATCA also created a brand-new requirement called Form 8938.

Form 8938 requires US taxpayers to report to the IRS their Specified Foreign Financial Assets (“SFFA”) together with the taxpayers’ US tax returns. Prior to tax year 2016, only a Specified Individual was required to report his SFFA to the IRS. Starting tax year 2016, a Specified Domestic Entity is also required to disclose its SFFA on Form 8938.

Specified Individual Definition

Treas. Reg. §1.6038D-1(a)(2) defines a “specified individual” as anyone who is: (I) US citizen; (ii) resident alien of the United States for any portion of the taxable year; (iii) nonresident alien for whom an election under 26 U.S.C. §6013(g) or (h) is in effect (i.e. nonresident alien who makes an election to be treated as a resident alien in order to file a joint US tax return); or (iv) nonresident alien who is a bona fide resident of Puerto Rico or a section 931 possession (as defined in Treas. Reg. §1.931-1(c)(1) – i.e. Guam, American Samoa and Northern Mariana Islands).

Resident alien includes anyone who is a US permanent resident or meets the substantial presence test.

Contact Sherayzen Law Office for Help With Form 8938 If You Are a Specified Individual

If you are a specified individual who has undisclosed foreign accounts or any other SFFA, contact Sherayzen Law Office as soon as possible to explore your offshore voluntary disclosure options. Sherayzen Law Office is a highly experienced international tax law firm that specializes in offshore voluntary disclosures, including Streamlined Compliance Procedures (both Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures), Delinquent FBAR Submission Procedures, Delinquent International Information Return Submission Procedures and Reasonable Cause (so-called Noisy) Disclosures.

We have helped hundreds of US taxpayers all around the globe to bring their US tax affairs into full compliance with US tax laws, and We can Help You! Contact Us Today to Schedule Your Confidential Consultation!

FATCA Compliance Presents Challenges for Hedge Funds

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The Foreign Account Tax Compliance Act (FATCA) created a worldwide international tax compliance regime that has influenced more industries than simply foreign financial institutions. FATCA compliance presents a formidable challenge even to hedge funds.

FATCA Compliance Challenges for Hedge Funds

The challenges that FATCA compliance poses to hedge funds is best understood by analyzing what FATCA compliance requires of hedge funds – a multi-group coordination effort from various divisions within a business enterprise: business, operations, technology, finance and compliance.

The compliance department, most likely with the cooperation of the in-house counsel (and outside counsel who specializes in FATCA compliance, if in-house counsel lacks such knowledge) should lay out the FATCA compliance goals and make sure that the FATCA compliance process complies with these goals. The operations division should create the framework for the FATCA compliance process, including how this process should be controlled and managed for tax reporting and tax withholding purposes. The technology division needs to build the IT infrastructure to address the technological challenges of FATCA goals in a cost-effective way. The members of the business division (which incorporates the actual customer intake) should be thoroughly educated in the FATCA compliance process as well as the company’s specific IT solutions.

When this FATCA compliance process is applied to the hedge fund industry, one can clearly see the numerous challenges that the hedge funds face in the implementation of their FATCA compliance. The hedge funds need to register their funds for FATCA on the IRS portal, gather various investor data with respect to numerous (and often changing) customers, review and assess such data, and properly report customer data to the IRS.

Another challenge for hedge funds is the required tax withholding. Unlike previous attempts at international tax legislation, FATCA has very effective enforcement mechanisms which forces all US banks, brokers and financial institutions to essentially work for the IRS, including withholding taxes. In fact, the hedge funds that deal in US dollars are likely to be subject to the withholding tax requirement at an increasing rate in the near future.

However, the tax withholding challenge for hedge funds goes far beyond the more straightforward fact that it will need to withhold tax. Rather, the biggest headache for hedge funds is the identification of the beneficial owners and controlling persons of their clients. A lot of investors in hedge funds operate through unregulated legal vehicles or individual agents; this fact makes the FATCA data collection process a much more difficult challenge for hedge funds.

Finally, the variations in IGAs to implement FATCA present an additional challenge. While this problem is not specific to hedge funds, it is the one that they still have to manage.

Impact of FATCA Compliance By Hedge Funds On US Taxpayers

Despite these challenges, many hedge funds are successfully addressing FATCA compliance issues and are incorporating advanced software solutions to make their look-through process more efficient.

These successes of hedge funds in their FATCA compliance make it difficult for US persons investing in mutual funds through foreign entities to conceal their ownership of these entities. This means that one can expect an increase of the IRS discovery of such investors.

If these investors are not in full compliance with their US tax obligations – particularly with respect to FBAR, Form 8938, foreign business ownership reporting, foreign trust ownership and foreign income disclosure – they may be facing catastrophic US tax consequences, including draconian FBAR willful penalties as well as potential imprisonment.

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

If you have undisclosed foreign assets or foreign income, please contact Sherayzen Law Office as soon as possible. After reviewing the facts of your case and analyzing the available voluntary disclosure options, Mr. Sherayzen will conduct your voluntary disclosure process from the beginning through the end, including the preparation all of the required legal documents and tax forms.

Contact Us to Schedule Your Confidential Consultation Now!