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Cambata Case: IRS Wins Against Former U.S. Citizen on Offshore Income

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In the Cambata case, the IRS successfully demonstrated once again that renunciation of U.S. citizenship will not protect a taxpayer from being pursued for unreported income from foreign accounts. On February 3, 2016, Mr. Albert Cambata pleaded guilty to filing a false income tax return with respect to his unreported Swiss account income.

Facts Related to Mr. Cambata’s Unreported Swiss account income

According to court documents, in 2006, Mr. Albert Cambata established Dragonflyer Ltd., a Hong Kong corporate entity, with the assistance of a Swiss banker and a Swiss attorney. Days later, he opened a financial account at Swiss Bank 1 in the name of Dragonflyer. Although he was not listed on the opening documents as a director or an authorized signatory, Mr. Cambata was identified on another bank document (which the IRS obtained most likely through the Swiss Bank program) as the beneficial owner of the Dragonflyer account. That same year, Mr. Cambata received $12 million from Hummingbird Holdings Ltd., a Belizean company. The $12 million originated from a Panamanian aviation management company called Cambata Aviation S.A. and was deposited to the Dragonflyer bank account at Swiss Bank 1 in November 2006.

On his 2007 and 2008 federal income tax returns, Mr. Cambata failed to report interest income earned on his Swiss financial account in the amounts of $77,298 and $206,408, respectively. In April 2008, Mr. Cambata caused the Swiss attorney to request that Swiss Bank 1 send five million Euros from the Swiss financial account to an account Mr. Cambata controlled at the Monaco branch of Swiss Bank 3. In June 2008, Cambata closed his financial account with Swiss Bank 1 in the name of Dragonflyer and moved the funds to an account he controlled at the Singapore branch of Swiss Bank 2.

In 2012, Mr. Cambata, who has lived in Switzerland since 2007, went to the U.S. Embassy in Bratislava, Slovakia, to renounce his U.S. citizenship and informed the U.S. Department of State that he had acquired the nationality of St. Kitts and Nevis by virtue of naturalization.

Link between the Cambata Case and Swiss Bank Program

It appears that the IRS was able to focus on Mr. Cambata due to information provided by one of the Swiss Bank that participated in the Swiss Bank Program. This led to the IRS investigation that unraveled the whole scheme constructed by Mr. Cambata. Additional information might have been provided to the IRS by one of the Category 1 banks as part of a Deferred Prosecution Agreement.

This affirms what the IRS has stated in the past about its determination to continue to pursue older fraud cases based on the information it already obtained from the Swiss banks. “IRS Criminal Investigation will continue to pursue those who do not pay the taxes they owe to the United States,” said Special Agent in Charge Thomas Jankowski of the Internal Revenue Service-Criminal Investigation, Washington, D.C. Field Office. “Today’s plea is a reminder that we are committed to following the money trail across the globe and will not be deterred by the use of sophisticated international financial transactions that hide the real ownership of income taxable by the United States.”

The Global Reach of the IRS Investigations Grows

Mr. Cambata’s accounts were spread out among the local branches of Swiss banks in Monaco, Singapore and Switzerland. The funds originated from companies based in Belize and Panama (the information regarding these companies was probably obtained through John Doe summons issued in 2015).

It becomes obvious from this case that our earlier warnings about the spread of the IRS investigations beyond Switzerland were correct. The IRS now reaches far beyond Switzerland and focuses more and more on jurisdictions like Belize, Cayman Islands, Cook Islands, Monaco, Panama, Singapore and other favorite offshore jurisdictions. The Cambata case is a grave warning to U.S. taxpayers who still operate in offshore jurisdictions to hide assets from the U.S. government.

The Cambata Case is a Warning to Taxpayers Who Pursued Quiet Disclosure to Cover-Up Past Tax Noncompliance

One of the most curious aspects about the Cambata case is that the IRS never imposed any FBAR penalties or tax return penalties with respect to the later years. While it is not clear from the documents, it appears that Mr. Cambata probably did a quiet disclosure in the year 2009 and has properly filed his FBARs and tax returns ever since.

The FBAR statute of limitations probably did not allow the IRS to impose the FBAR penalties, but the IRS still ignored the quiet disclosure and pursued criminal penalties for the 2006 and 2007 fraudulent tax returns (in addition to restitution of $84,849 – presumable the tax Mr. Cambata would have owed had he filed his 2006 and 2007 returns correctly).

Therefore, U.S. taxpayers who filed quiet disclosure should heed one of the main lessons of the Cambata case – quiet disclosure will not protect you from the IRS criminal prosecution.

The Cambata Case is also a Warning to Taxpayers Who Renounced U.S. Citizenship to Hide Past Tax Noncompliance

The Cambata case also dispels another myth common to U.S. taxpayers: renouncing citizenship somehow prevents the IRS criminal prosecution for past noncompliance. On the contrary, U.S. taxpayers who renounce citizenship may draw the IRS attention because they have to certify that they are fully compliant with the tax laws of the United States.

If the IRS is able to prove that these taxpayers are not fully tax-compliant, then, as the Cambata case clearly demonstrates, the IRS can pursue criminal penalties against former U.S. citizens. It is possible that one of the chief purposes of the IRS in this case was to scare other U.S. citizens who renounced their citizenship to hide their past tax noncompliance.

Contact Sherayzen Law Office for Legal Help with Your Foreign Accounts

If you have undisclosed foreign accounts, contact Sherayzen Law Office as soon as possible. Whether your case involves complex beneficial ownership structures or you own your foreign accounts personally, our highly experienced team of tax professionals can help you!

Contact Us Today to Schedule Your Confidential Consultation!

2015 FBAR (FinCEN Form 114) Due on June 30, 2016

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2015 FBAR is one of the most important tax information returns required by the IRS this year. While the 2015 FBAR is not the most complicated form, it is definitely the one that is associated with the most severe penalties.

2015 FBAR History

The FBAR is an abbreviation for the Report of Foreign Bank and Financial Accounts (the “FBAR”). The current official name of the FBAR is FinCEN Form 114 (prior to mandatory e-filing, Form TD F 90-22.1 was the name of the FBAR).

Many of my clients are surprised to learn that FBAR is a tax information return with a long history, dating back to the late 1970s. Its origin lies in the Bank Secrecy Act (31 U.S.C. §5311 et seq.) and it was originally meant to combat money laundering. However, after September 11, 2001, the FBAR enforcement was turned over to the IRS and it became a tax-enforcement tool of heretofore unimaginable power due to its heavy penalties.

Who is Required to File 2015 FBAR

The Department of Treasury (the “Treasury”) requires that an FBAR is filed whenever a US person has a financial interest in or signatory authority over foreign financial accounts and the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. If you had such a situation in 2015, then you must seek an advice from an FBAR lawyer on whether you need to file the 2015 FBAR.

2015 FBAR Deadline

2015 FBAR must be e-filed with the IRS by June 30, 2016; there are no extensions available – the 2015 FBAR must be received by the IRS no later than June 30, 2016. Note: FBAR due date now coincides with due dates for tax returns. 

Consequences of Failure to File Your 2015 FBAR Timely

If your 2015 FBAR is not timely filed, then it will be considered delinquent and might be subject to severe FBAR civil and criminal penalties, depending on your circumstances. It is also important to point out that an incorrect or incomplete 2015 FBAR will also be considered delinquent with the higher possibility of imposition of the FBAR’s draconian penalties.

Multiple Years of FBAR Delinquency

If you did not file the FBARs in the prior years and you were required to do so, this situation is extremely dangerous (especially in our FATCA-dominated world) and may result in imposition of multiple FBAR penalties. This is why you should seek advice of an experienced FBAR lawyer as soon as possible

Contact Sherayzen Law Office for Assistance with Your FBAR Compliance

If you have not filed your FBARs previously and you were required to do so, contact Sherayzen Law Office for help as soon as possible. Our team of experienced tax professionals, headed by attorney Eugene Sherayzen, has helped hundreds of US taxpayers around the world to lower and even eliminate their FBAR penalties. We can help You!

Contact Us NOW to Schedule Your Confidential Consultation

FBAR and Form 8938 Filings Continue to Grow

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On March 15, 2016, the IRS announced that there was continuous growth in the FBAR and Form 8938 filings. While the IRS attributes this growth in FBAR and Form 8938 filings to the greater awareness of taxpayers, one cannot underestimate the impact of the FATCA letter and the increasing knowledge of foreign financial institutions with respect to U.S. tax reporting requirements.

Background Information for the FBAR and Form 8938 Filings

FBAR and Form 8938 are the main forms with respect to reporting of foreign financial accounts and (in the case of Form 8938) “other specified assets”. The Report of Foreign Bank and Financial Accounts, FinCEN Form 114 (commonly known as “FBAR”) should be filed by U.S. taxpayers to report a financial interest in or signatory authority over foreign financial accounts if the aggregate value of these accounts exceeds $10,000. This form is associated with draconian noncompliance penalties.

IRS Form 8938 was created by the famous Foreign Account Tax Compliance Act (“FATCA”). Generally, U.S. citizens, resident aliens and certain non-resident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds the required thresholds (the lowest threshold is $50,000, but it varies by taxpayer). The noncompliance with respect to Form 8938 may result in additional penalties, including $10,000 per form.

IRS Registers Sustained Increase in the FBAR and Form 8938 Filings

Compliance with FBAR and, later, Form 8938 is one of the top priorities for the IRS according to the IRS Commissioner John Koskinen. Recent statistics with respect to the FBAR and Form 8938 filings support the conclusion that the IRS has been largely successful in achieving this task.

The IRS states that the FBAR filings have grown on average by 17 percent per year during the last five years, according to FinCEN data. In fact, in 2015, FinCEN received a record high 1,163,229 FBARs.

Similar, but far less successful trends can be seen with respect to Form 8938 filings. In 2011, the IRS received about 200,000 Forms 8938, but the number rose to 300,000 by the tax year 2013. However, it seems to have stagnated at the same number judging from the statistics for the tax year 2014.

While the lower number of Forms 8938 could be explained by the novelty of the form as well as higher thresholds, it appears that some Forms 8938 might not also be filed due to mistaken calculation of the asset base used to determine whether Form 8938 filing requirements were met.

Nevertheless, overall, it appears that the FBAR and Form 8938 filings have grown sufficiently for the IRS to be satisfied with its progress.

Contact Sherayzen Law Office for Professional Help with Your FBAR and Form 8938 Filings

U.S. international tax law is incredibly complex and the penalties are excessively high. If you were supposed to file FBARs and Forms 8938 in the past, but you have not done so, you need to contact Sherayzen Law Office as soon as possible. Mr. Sherayzen and his legal team will thoroughly analyze your case, assess your potential tax liabilities, determine the available voluntary disclosure options, and implement (including the preparation of all legal documents and tax forms) the voluntary disclosure option that fits your case best.

Contact Us Today to Schedule Your Confidential Consultation!

Minneapolis FBAR Attorney | FATCA OVDP Tax Lawyer

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If you are looking for a Minneapolis FBAR Attorney, a recommended suggestion would be to retain the services of Mr. Eugene Sherayzen of Sherayzen Law Office, Ltd. (“Sherayzen Law Office”). Mr. Sherayzen is a Minneapolis FBAR Attorney and founder of Sherayzen Law Office.

Minneapolis FBAR Attorney: Sherayzen Law Office FBAR Specialization

Sherayzen Law Office specializes in international tax compliance, including voluntary disclosure of delinquent (i.e. late) FBARs. As a Minneapolis FBAR Attorney, Mr. Sherayzen has helped hundreds of US taxpayers worldwide to bring their tax affairs into full compliance with US tax laws.

The work of a Minneapolis FBAR Attorney is not limited only to FBARs. Rather, a Minneapolis FBAR Attorney needs to be able to deliver a variety of services and freely operate with experience and knowledge in all relevant areas of international tax law. For example, oftentimes, the calculation of FBAR penalties may depend upon certain legal and accounting interpretations which would allow one to determine whether one has an income-compliant account. These interpretations themselves may be highly technical in nature and may come from different determinations from other areas of the case.

Moreover, as part of an offshore voluntary disclosure, a Minneapolis FBAR Attorney often needs to amend US tax returns, properly prepare foreign financial statements according to US GAAP, correctly calculate PFICs, and innumerable number of other tasks.

Sherayzen Law Office Legal Team Provides Efficient and Cost-Effective Services

In order to make sure that his work as a Minneapolis FBAR Attorney is expeditious and cost-effective, Mr. Sherayzen built a team of tax professionals that he employs within his firm. Each member of the team is trained personally by Mr. Sherayzen and is assigned specific tasks. For example, an international tax accountant helps Mr. Sherayzen prepare the clients’ tax returns while his staff is trained in creating FBARs based on the information already verified by Mr. Sherayzen.

This team of motivated, intelligent and experienced tax professionals allows Sherayzen Law Office to provide an exceptional array of customized offshore voluntary disclosure and international tax compliance services which fully integrate the legal and accounting aspects of international tax compliance and offshore voluntary disclosures in an efficient and cost-effective manner.

Therefore, if you are looking for a Minneapolis FBAR Attorney, please contact Mr. Sherayzen as soon as possible to secure Your Confidential Consultation!

Fee Agreement Arrangements with Tax Lawyers in Minneapolis: 5 Most Important Issues

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In this article, I will discuss five most important issues that you need to know before you sign a fee agreement with tax lawyers in Minneapolis.

1. How is the lawyer’s fee paid? There are three main models of payment that lawyers use: hourly fee, contingency fee, and flat fee. The hourly fee is the most common form of tax lawyer compensation and it is fairly simple – the tax attorney is paid only based on the time he spends on the case. If you’re paying your tax lawyer by the hour, the agreement should set out the hourly rates of the tax attorney and anyone else in this attorney’s office who might work on the case. The contingency fee arrangement, where the tax attorney takes a percentage of the amount the client wins at the end of the case, is almost never used by tax attorneys in Minneapolis. In the unlikely case that this latter type of fee arrangement is used, the most important issue to understand is whether the tax lawyer deducts the costs and expenses from the amount won before or after you pay the lawyer’s percentage. Obviously, you will pay more in attorney fees if your tax lawyer deducts the litigation costs based on the latter scenario (i.e. after you pay the lawyer’s fee). Finally, in a flat fee arrangement, you pay an agreed-upon amount of money for a project. For example, you pay $3,000 to your tax attorney to file delinquent FBARs (Reports on Foreign Bank and Financial Accounts) for the past five years. While a flat fee arrangement is possible in a small project, it is generally disliked by tax lawyers in Minneapolis because it often lacks the necessary flexibility to account for the client’s individual legal situation. Usually, some sort of an additional payment arrangement is built into such fee agreements to make sure that the balance between the client’s legal needs and the tax attorney’s fees is maintained.

Remember, usually, you will have to pay out-of-pocket expenses (e.g. long-distance calls, mailing costs, photocopying fees, lodging, etc.) and litigation costs (such as court filing fees) in addition to your tax lawyer’s fees.

2. Does the agreement include the amount of the retainer? Most tax lawyers in Minneapolis require their client to pay a retainer. Retainer can mean two different fee arrangements. First, retainer may be the amount of money a client pays to guarantee a tax attorney’s commitment to the case. Under this arrangement, the retainer is not a form of an advance payment for future work, but a non-refundable deposit to secure the lawyer’s availability. Second, a retainer is simply the amount of money a tax attorney asks his client to pay in advance. In this scenario, the lawyer usually deposits the retainer in a client trust account and withdraws money from it for the work completed according to the fee agreement. The fee agreement should specify the amount of the retainer and when the lawyer can withdraw money form the client trust account (usually, on a monthly basis).

3. How often will you be billed? Most tax attorneys in Minneapolis bill their clients on a monthly basis. Sometimes, however, when the project is not large, the fee agreement will specify that you will be billed upon completion of the case. In a flat-fee scenario, it is likely that the client will be obligated to pay either a half or even the whole amount immediately as a retainer. It is wise for a client to insist in paying some part of the fee upon completion of the case to retain a degree of control over the case completion.

4. What is the scope of the tax attorney’s representation? Most tax lawyers in Minneapolis will insist on defining their obligations in the fee agreement. The most important issue here is to state what the tax attorney is hired for without defining it either too narrowly or too broadly. Usually, a fee agreement should specify that a new contract should be signed if you decide to hire this tax lawyer to handle other legal matters.

If you are hiring a large or a mid-size law firm, beware that the partners in a law firm often delegate some or all of their obligations to their associates or even their staff. While the partners retain full responsibility for the case, there is a danger that important parts of it may be delegated to far less experienced associates. Besides the potential quality issues, there is also a concern that you would be paying a large hourly fee for a first-year associate’s work. It is important to insist that the fee agreement specifies what, if any, type of work is being delegated to the associates, the corresponding billing rate of each associate involved, and who carries the responsibility for the whole case.

5. Who controls what decisions? Whether this information should be included in the fee agreement really depends on a case and on an attorney. Generally, tax attorneys in Minneapolis let their clients make the important decisions that affect the outcome of the case (such as: acceptance or rejection of the IRS settlement offer, commencement of a lawsuit, business decisions, et cetera). All of the decisions with respect to the legal issues (such as: where to file a lawsuit, what motions should be filed, what negotiation tactics should be employed, how to structure a business transaction from a tax perspective, etc.) are usually taken by the tax lawyers. If there are any changes to this arrangement (for example, you want your lawyer to make certain decisions with the respect to the outcome of the case), you should insist that these modifications be reflected in the fee agreement.

Generally, before you sign the fee agreement, tax lawyers in Minneapolis will discuss with you many more topics than what is covered in this article. The five issues explained here, however, are crucial to your understanding of how the tax relationship with your tax attorney will work. Before you sign the fee agreement with your tax lawyer, you should ask at least these five questions and make sure that the answers are complete and to your satisfaction.