Posts

Foreign Life Insurance Policies – FBAR Reporting

/0 Comments/in , /by

Foreign Life Insurance Policies are very popular around the world, especially in India, Germany and France (Assurance Vie accounts). Yet, very few U.S. taxpayers (especially H-1B holders and U.S. permanent residents) are aware of the fact that these policies may be subject to numerous and complex IRS tax reporting requirements in the United States. In this article, I would like to generally discuss the FBAR requirements applicable to foreign life insurance policies.

I will not be discussing here the requirements for a qualified foreign life insurance policy, because it is mostly irrelevant since the great majority of foreign life insurance policies would not be qualified policies.

Types of Foreign Life Insurance Policies

Before we start exploring which foreign life insurance policies (also known as Life Assurance Policies) are subject to the FBAR requirement, it is important to distinguish three general categories of foreign life insurance policies.

In the order of rising complexity, the first category of foreign life insurance policies consists of simple, straightforward life insurance policies with no cash surrender value, no income payments and no income accumulations. The taxpayer simply makes the required premium payments and he expects a fixed-amount payout at death.

The second category of foreign life insurance policies has a cash-surrender value, but no income. The taxpayer pays a premium and expects a certain payout when the policy is surrendered or matures. The cash surrender value grows over time mostly through premiums and bonuses which would be paid out when the policy is surrendered. There is also a potential death benefit.

Finally, the third category of foreign life insurance policies has a cash-surrender value with investments and/or income. There is a large variety of investment life insurance policies. The most common arrangement, though, is where the taxpayer pays a relatively large initial premium which is invested in foreign mutual funds; the growth in mutual funds will usually determine the cash-surrender value. Oftentimes, the cash-surrender value in these policies is tax-free if certain requirements are met (for example, Assurance Vie policies in France or certain life insurance policies in India).

In some cases (for example, in Malaysia), an investment foreign health insurance policy may be tied into a life insurance policy.

FBAR – FinCEN Form 114

FinCEN Form 114 – Report of Foreign Bank and Financial Accounts (commonly known as FBAR) is the most important US tax information return. FBAR must be filed by a US tax resident if the aggregate value of foreign financial accounts (in which this US person has financial interest and/or over which this US person has signatory authority) exceeds $10,000 at any time during the calendar year. The 2015 FBAR must be received by the IRS by June 30, 2016 without any extension possible; however, starting the reporting for the calendar year 2016 (i.e. 2016 FBAR) the FBARs are due on April 15 with an extension possible.

The importance of FBAR stems from the draconian FBAR penalties. Unlike many other information returns, FBAR imposes penalty not only on the willful non-filing, but also on the non-willful failure to file the FBAR. The willful FBAR penalties range from criminal penalties with up to 5 years in prison to up to $100,000 penalty per account per year. The FBAR statute of limitations is six years, which means that up to six years maybe subject to a penalty (though, usually it would be 2-4 years).

Foreign Life Insurance Policies and FBAR Reporting

Foreign life insurance policies must be reported on the FBAR if they have a cash-surrender value. Therefore, foreign life insurance policies that fall into categories two and three described above are always reportable. Investment foreign life insurance policies promoted by national governments (such as Assurance Vie accounts in France) are reportable even if they are considered to be held by a foreign trust (such as Superannuation Accounts in Australia).

The first category of foreign life insurance policies I listed above (i.e. life insurance policies without any cash-surrender value) are not likely to be reportable, but there are exceptions.

The determination of whether your foreign life insurance policies are reportable on the FBAR should be made by an international tax attorney; I strongly discourage any attempt by US taxpayers to make this determination without legal assistance.

Foreign Life Insurance Policies and Other Reporting Requirements

It is important to note that other US reporting requirements may apply to foreign life insurance policies. Examples include FATCA Form 8938, PFIC compliance, foreign trust reporting, et cetera.

Contact Sherayzen Law Office for Help With Foreign Life Insurance Policies

If you have foreign life insurance policies, contact Sherayzen Law Office for assistance as soon as possible. Foreign life insurance policies can be extremely complex and the US reporting requirements associated with them vary from country to country. Sherayzen Law Office has accumulated tremendous experience in dealing with foreign life insurance policies from Australia, Canada, New Zealand, Europe and Asia. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Julius Baer Deferred Prosecution Agreement

/0 Comments/in , /by

On February 4, 2016, the US DOJ announced that it filed criminal charges against Bank Julius Baer & Co. Ltd. (“Julius Baer” or “the company”). At the same time, the DOJ announced a Julius Baer Deferred Prosecution Agreement. Let’s explore this event in more detail.

Julius Baer Deferred Prosecution Agreement Background

Unlike many other Swiss Banks, Julius Baer could not participate in the Swiss Bank Program due to its classification as a Category 1 bank. Hence, the Julius Baer Deferred Prosecution Agreement comes as an independent agreement with the DOJ after the DOJ filed criminal charges against Julius Baer.

According to the IRS and the court documents, from at least the 1990s through 2009, Julius Baer helped many of its U.S. taxpayer-clients evade their U.S. tax obligations, file false federal tax returns with the IRS and otherwise hide accounts held at Julius Baer from the IRS (hereinafter, undeclared accounts). Julius Baer did so by opening and maintaining undeclared accounts for U.S. taxpayers and by allowing third-party asset managers to open undeclared accounts for U.S. taxpayers at Julius Baer. Casadei and Frazzetto, bankers who worked as client advisers at Julius Baer, directly assisted various U.S. taxpayer-clients in maintaining undeclared accounts at Julius Baer in order to evade their obligations under U.S. law. At various times, Casadei, Frazzetto and others advised those U.S. taxpayer-clients that their accounts at Julius Baer would not be disclosed to the IRS because Julius Baer had a long tradition of bank secrecy and no longer had offices in the United States, making Julius Baer less vulnerable to pressure from U.S. law enforcement authorities than other Swiss banks with a presence in the United States.

Julius Baer was aware that many U.S. taxpayer-clients were maintaining undeclared accounts at Julius Baer in order to evade their U.S. tax obligations, in violation of U.S. law. In internal Julius Baer correspondence, undeclared accounts held by U.S. taxpayers were at times referred to as “black money,” “non W-9,” “tax neutral,” “unofficial,” or “sensitive” accounts.

At its high-water mark in 2007, Julius Baer had approximately $4.7 billion in assets under management relating to approximately 2,589 undeclared accounts held by U.S. taxpayer-clients. From 2001 through 2011, Julius Baer earned approximately $87 million in profit on approximately $219 million gross revenues from its undeclared U.S. taxpayer accounts, including accounts held through structures.

However, the IRS noted that the behavior of Julius Baer started to change. By at least 2008, Julius Baer began to implement institutional policy changes to cease providing assistance to U.S. taxpayers in violating their U.S. legal obligations. For example, by November 2008, the company began an “exit” plan for U.S. client accounts that lacked evidence of U.S. tax compliance. In that same month, Julius Baer imposed a prohibition on opening accounts for any U.S. clients without a Form W-9.

Additionally, in November 2009, before Julius Baer became aware of any U.S. investigation into its conduct, Julius Baer decided proactively to approach U.S. law enforcement authorities regarding its conduct relating to U.S. taxpayers. Prior to self-reporting to the Department of Justice, Julius Baer notified its regulator in Switzerland of its intention to contact U.S. law enforcement authorities. This Swiss regulator requested that Julius Baer not contact U.S. authorities in order not to prejudice the Swiss government in any bilateral negotiations with the United States on tax-related matters. Accordingly, Julius Baer did not, at that time, self-report to U.S. law enforcement authorities.

After ultimately engaging with U.S. authorities, Julius Baer has taken extensive actions to demonstrate acceptance and acknowledgment of responsibility for its conduct. Julius Baer conducted a swift and robust internal investigation, and furnished the U.S. government with a continuous flow of unvarnished facts gathered during the course of that internal investigation. As part of its cooperation, Julius Baer also, among other things, (1) successfully advocated in favor of a decision provided by the Swiss Federal Council in April 2012 to allow banks under investigation by the U.S. Department of Justice to legally produce employee and third-party information to the department, and subsequently produced such information immediately upon issuance of that decision; and (2) encouraged certain employees, including specifically Frazzetto and Casadei, to accept responsibility for their participation in the conduct at issue and cooperate with the ongoing investigation.

Julius Baer Deferred Prosecution Agreement Details

Under the Julius Baer Deferred Prosecution Agreement, the bank admitted to helping U.S. taxpayers hide assets and knowingly assisted many of its U.S. taxpayer-clients in evading their tax obligations under U.S. law. The admissions are contained in a detailed Statement of Facts attached to the agreement. The agreement requires Julius Baer to pay a total of $547 million by no later than February 9, 2016, including through a parallel civil forfeiture action also filed today in the Southern District of New York.

Julius Baer Deferred Prosecution Agreement Impact on U.S. Taxpayers

The Julius Baer Deferred Prosecution Agreement signifies yet another IRS victory over the now-defeated Swiss bank secrecy system. The IRS is simply “mopping-up” the left-over issues in Switzerland as it shifts its focus to other major offshore tax havens. Yet, the Julius Baer Deferred Prosecution Agreement is still a major event that has repercussions for U.S. taxpayers with undeclared foreign accounts.

First, the Julius Baer Deferred Prosecution Agreement is likely to continue to impact former Julius Baer U.S. taxpayers who transferred their funds out of this Swiss bank to another country or another bank in the hopes of avoiding IRS detection of their prior non-compliance. Under the agreement, Julius Baer will continue to cooperate with the IRS in the identification of such noncompliant U.S. taxpayers.

Second, Julius Baer is an important Swiss bank and the fact that the Julius Baer Deferred Prosecution Agreement was reached encourages other noncompliant banks (not only in Switzerland, but other countries) to follow its example. Therefore, U.S. taxpayers who believe they are safe outside of Switzerland are now in the ever increasing danger of IRS detection.

Contact Sherayzen Law Office for Professional Help with Your Undeclared Foreign Accounts

The Julius Baer Deferred Prosecution Agreement is another reminder on how dangerous is the current tax environment for noncompliant U.S. taxpayers. Therefore, if you have not disclosed your foreign accounts, foreign assets or foreign income, please contact Sherayzen Law Office as soon as possible. Our team of tax professionals is highly experienced in handling these matters and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

No FBAR Penalty Option

/0 Comments/in , /by

No FBAR Penalty is the result that every taxpayer wishes to achieve. Indeed, having no FBAR penalty is a realistic objective, but only in certain situations. One of such situations is currently offered by the IRS through Delinquent FBAR Submission Procedures.

History of the IRS Procedures Regarding No FBAR Penalty Option

There is a relatively long history behind the option that taxpayers with delinquent FBARs would be charged no FBAR penalty. It comes from the traditional link between income tax noncompliance and the imposition of an FBAR penalty. Prior to 2009 OVDP, the No FBAR Penalty option was unofficial, but very much part of the IRS tradition in situations where a taxpayer would not have any additional U.S. tax liability as a result of his voluntary disclosure of foreign accounts.

The rules for the 2009 IRS Offshore Voluntary Disclosure Programs (“2009 OVDP”) finally officially recognized the No FBAR Penalty option in the answer to Question #9. The FAQ #9 also for the first time properly stated the legal philosophy behind the No FBAR Penalty option: “The purpose for the voluntary disclosure practice is to provide a way for taxpayers who did not report taxable income in the past to voluntarily come forward and resolve their tax matters.” Hence, if a taxpayer “reported and paid tax on all taxable income but did not file FBARs, do not use the voluntary disclosure process.” Rather, the taxpayer was urged to file the FBARs directly with the explanation of why the FBARs were filed late.

Both, the 2011 IRS Offshore Voluntary Disclosure Initiative (“2011 OVDI) and 2012 Offshore Voluntary Disclosure Program (“2012 OVDI) again reinforced the No FBAR Penalty with FAQ #17: “The IRS will not impose a penalty for the failure to file the delinquent FBARs if there are no underreported tax liabilities and you have not previously been contacted regarding an income tax examination or a request for delinquent returns.”

On June 18, 2014, with the creation of 2014 Offshore Voluntary Disclosure Program (“2014 OVDP”), the IRS removed the 2014 OVDP FAQ #17 and replaced it the modern official No FBAR Penalty option called Delinquent FBAR Submission Procedures.

No FBAR Penalty Option under the Delinquent FBAR Submission Procedures

Under the Delinquent FBAR Submission Procedures, the IRS promises not to impose FBAR penalties for the failure to file the delinquent FBARs if three requirements are met: (1) the taxpayer properly reported on his U.S. tax returns (and paid all tax on) the income from the foreign financial accounts reported on the delinquent FBARs; (2) the IRS has not contacted the taxpayer previously regarding an income tax examination (civil or criminal) for the years for which the delinquent FBARs are submitted; and (3) the IRS has not previously requested from the taxpayer the FBARs for the years for the years for which the delinquent FBARs are submitted.

If all three requirements are met, the taxpayers can pursue Delinquent FBAR Submission Procedures by filings the delinquent FBARs with FinCEN directly. A statement explaining why the FBARs are filed late must be provided to the IRS.

Contact Sherayzen Law Office to Explore Your No FBAR Penalty Options

Delinquent FBAR Submission Procedures is probably one of the most popular No FBAR penalty options, but it is a limited one because it is not always possible to comply with all three of the formal requirements of the Procedures. Thankfully, these Procedures are not the only No FBAR Penalty Option offered by the IRS.

This is why, if you have undisclosed foreign accounts, you should contact the experienced international tax law firm of Sherayzen Law Office. We will thoroughly explore your case, analyze your No FBAR penalty and voluntary disclosure options, choose the disclosure route that best balances your risks and rewards, prepare all of the required legal documents and tax forms, and defend your case against the IRS. We have helped hundreds of U.S. taxpayers around the world and we can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Higher OVDP Penalty Risk for US Taxpayers With Foreign Accounts

/0 Comments/in , /by

December of 2015 was one of the most successful months for the DOJ’s Swiss Bank Program as nearly a record number of banks signed non-prosecution agreements. This success for the DOJ means that more and more of non-compliant US taxpayers with foreign accounts are likely to deal with Higher OVDP Penalty with respect to their undisclosed foreign accounts.

DOJ’s Swiss Bank Program

The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (Program) was announced by the US Department of Justice on August 29, 2013. The Program was intended to achieve multiple goals, but there are four of them that are most important to the understanding of the Higher OVDP Penalty and the Program.

First, this was an “offer that one cannot refuse” for the Swiss banks– the Program was intended to “allow” (or force) Swiss banks to bring themselves into compliance with US tax laws. In exchange, the Swiss banks received a non-prosecution agreement that promised them protection from US legal enforcement actions.

Second, the Program was intended to obtain as much information as possible about non-compliant US taxpayers with foreign accounts.

The third important goal was to create an atmosphere of global enforcement that would make US voluntary disclosure the most rational choice for non-compliant US taxpayers with foreign accounts given the risk of IRS discovery of their undisclosed foreign accounts.

Fourth, the Program was intended to pave the way for easier acceptance of FATCA throughout the world by demonstrating what could potentially happen in any country that decides to resist the implementation of FATCA.

It must be stated that the Swiss Bank Program has been a spectacular success for the DOJ and the IRS. Both, the banks and non-compliant US taxpayers with foreign accounts flocked to the voluntary disclosure programs. Moreover, today, FATCA is the new global standard of international tax enforcement.

2014 OVDP

The current 2014 IRS Offshore Voluntary Disclosure Program is a modification of 2012 OVDP which, in turn, was the continuation of a series of prior IRS offshore voluntary disclosure programs (particularly 2011 OVDI). The 2014 OVDP is designed to help non-compliant US taxpayers with foreign accounts to bring their tax affairs into compliance with US tax laws.

2014 OVDP has a two-tier penalty system. The 50% penalty rate applies to US taxpayers with foreign accounts in the banks on the special IRS list. The 27.5% penalty rate applies to everyone else.

Influence of the Program on the OVDP

The Swiss Bank Program has a direct impact on the IRS Offshore Voluntary Disclosure Program because every Swiss Bank that signs a Non-Prosecution Agreement under the Program is automatically added to the 50% penalty list of foreign banks.

Thus, as more and more Swiss Banks reach an agreement with the DOJ under the Program, the list of 50% penalty banks keeps expanding and so does the list of US taxpayers with foreign accounts who may be subject to this higher penalty rate.

What Should Non-Compliant US Taxpayers With Foreign Accounts Do?

The growing risk of higher OVDP penalty means that non-compliant US taxpayers with foreign accounts should explore their voluntary disclosure options as soon as possible by contacting an experienced international tax lawyer.

It is a mistake to assume that 50% penalty list will grow only as a result of the Swiss Bank Program. Even today, the list already contains banks which are located outside of the United States (such as HSBC India and Israeli Bank Leumi). This means that any bank in almost any part of the world may tomorrow be on the 50% penalty list and US taxpayers with foreign accounts in this bank would be forced to pay a much higher penalty.

Contact Sherayzen Law Office for Professional Tax Help With The Voluntary Disclosure of Your Foreign Accounts

The growing risk of higher OVDP penalty means that you should contact the experienced international tax team of Sherayzen Law Office. International tax attorney and Founder of Sherayzen Law Office, Mr. Eugene Sherayzen, will personally analyze your case, estimate your IRS penalty exposure, determine your offshore voluntary disclosure options, and implement your customized voluntary disclosure plan to resolve your US tax problems.

FBAR Disclosure: Fighting the Small Accounts Myth

/in , /by

A Minneapolis attorney recently said to me that he has a client who has not filed the FBARs but that client has a number of small accounts and no large accounts; the attorney wanted my opinion on whether it is worth it for smaller clients to go through the trouble of disclosing the accounts to the IRS. My answer was an emphatic YES!

This is exactly the type of myths that I have to battle when I get calls from all around the world from potential clients with smaller accounts. The general impression among these clients is that the IRS will only enforce the FBAR requirement against the “big fish” and there is no need to trouble themselves with voluntary disclosure of FBARs.

Unfortunately, this impression cannot be further from the truth. Tax experts around the country agree that the IRS enforcement of the FBAR requirements has risen to an unprecedented level. The risk of detection, especially once FATCA is fully implemented by the end of the year 2013, has been steadily growing since the 2008 UBS case, fed further by the information disclosed by the participants in the IRS voluntary disclosure programs. As a result, the number of the FBAR prosecutions by the IRS has also risen dramatically.

Given the draconian penalties associated with willful failure to file the FBAR and the high risk of detection, it is imperative for the small accountholders to go through the voluntary disclosure process (either through the 2012 OVDP or its alternatives) before the IRS finds them.

Moreover, for the smaller taxpayers who just found out about the FBAR and who may have a reasonable cause argument, there is an incentive to disclose the FBARs as soon as possible because, with an able attorney experienced in FBAR disclosures, they may be able to dramatically reduce and even eliminate the FBAR penalties.

However, the original non-willfulness can easily grow into willfulness where the taxpayers learn about the existence of the FBAR requirement, consciously disregard it and fail to file the FBARs. At that point, the original innocence of non-willful ignorance is gone, and the taxpayer is likely to face the imposition of much heavier penalties by the IRS.

It is worth noting, moreover, that in these willful cases, the imperative to do voluntary disclosure should be even higher precisely because the IRS is likely to impose unbearably high penalties otherwise. This is why the IRS created the 2012 Offshore Voluntary Disclosure Program so that these taxpayers can bring themselves back into tax compliance without fear of criminal prosecution.

It should be clear to all non-compliant US taxpayers – voluntary disclosure of offshore accounts is almost always better than the IRS finding your non-disclosed account. In my practice, the practice of FBAR voluntary disclosure has always been more beneficial to my clients whether they were located in Minneapolis, New York, San Francisco, Tampa, Canada, Australia, Mexico, Germany, Switzerland or any other country.

Contact Sherayzen Law Office for Help with Delinquent FBARs

If you have undisclosed foreign accounts and have not filed your FBARs, contact Sherayzen Law Office for help. Our experienced FBAR tax firm will thoroughly analyze your case, assess your current FBAR liability, examine your voluntary disclosure options and implement a comprehensive voluntary disclosure strategy striving to achieve the best result for you.