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Vadian Bank AG Signs Non-Prosecution Agreement with DOJ

On May 8, 2015, Vadian Bank AG (Vadian) became the second bank to sign a Non-Prosecution Agreement with the US Department of Justice (DOJ) pursuant to the DOJ Program for Swiss Banks.

Program for Swiss Banks: Background Information

On August 29, 2013, the DOJ announced the creation of the “The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (Program)”. The basic goal of the program was to allow Swiss banks to purge themselves of the prior US tax non-compliance (or complicity with such non-compliance) in exchange for providing DOJ with detailed description of their illegal activities, bank accounts owned by US persons and, in many cases, the payment of monetary penalties.

The Program is a really a version of the 2014 OVDP for foreign banks. However, it was not open to all banks. The banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

As of the time of this writing, the application process has already been completed for the great majority of the Swiss banks, and the Program has entered into the resolution phase (i.e. the review of the banks’ disclosure and penalty calculation).

Vadian bank’s case was the second such case that completed the resolution phase (BSI SA was the first bank to do so).

Vadian Bank Background

Vadian has one office and 26 employees. Prior to 2008, Vadian’s business predominantly consisted of savings accounts, residential mortgage lending and small business loans. In 2007, Vadian hired a marketing firm to assist with its planned growth into private banking, and focused its efforts on attracting external asset managers. In 2008, after it became publicly known that UBS was a target of a criminal investigation, Vadian accepted accounts from U.S. persons who were forced out of other Swiss banks. At this time, Vadian’s management was aware that the U.S. authorities were pursuing Swiss banks that facilitated tax evasion for U.S. accountholders in Switzerland, but was not deterred because Vadian had no U.S. presence. As a result of its efforts, after August 2008, Vadian attracted cross-border private banking business and increased its U.S. related accounts from two to more than 70, with $76 million in assets under management.

Through its managers, employees and/or other individuals, Vadian knew or believed that many of its U.S. accountholders were not complying with their U.S. tax obligations, and Vadian would and did assist those clients to conceal assets and income from the IRS. Vadian’s services included: “hold mail” services; numbered accounts, where the client was known to most bank employees only by a number or code name; opening and maintaining accounts for U.S. taxpayers through non-U.S. entities such as corporations, trusts or foundations; and accepting instructions from U.S.-based accountholders to prevent investments from being made in U.S.-based securities that would require disclosure to U.S. tax authorities.

Vadian Bank: Terms the DOJ Non-Prosecution Agreement

According to the terms of the non-prosecution agreement that was signed on May 20, 2015, Vadian agreed to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay a $4.253 million penalty in return for the department’s agreement not to prosecute Vadian for tax-related criminal offenses.

In resolving its criminal liabilities under the program, Vadian also provided extensive cooperation and encouraged U.S. accountholders to come into compliance.

Consequences of Vadian Non-Prosecution Agreement for Vadian US Accountholders

If you have (or had at any point since the year 2008) undeclared foreign accounts at Vadian, you may still be eligible to participate in the OVDP (assuming that you can pass the IRS-CI Preclearance process). However, the price of participating in the OVDP has almost doubled from the pre-Agreement 27.5% to the current 50% of the highest value of your undisclosed foreign assets.

Of course, if the behavior was non-willful, Streamlined options remain available at the same penalty rates.

What Should Vadian US Accountholders Do?

If you are a US person and an accountholder at Vadian, please contact the experienced international tax law firm of Sherayzen Law Office to explore your voluntary disclosure options as soon as possible.

The IRS Onslaught Against Bank Leumi Clients Continues: The Fogel Case

On February 2, 2015, one of Bank Leumi clients, Dr. Baruch Fogel of Laguna Beach, California, pleaded guilty today in the U.S. District Court for the Central District of California to willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR) for tax year 2009. In this article, I would like to explore some of the most pertinent facts of the Fogel Case and analyze this case in the context of the continuous IRS onslaught against Bank Leumi clients.

The Facts and Outcome of the Fogel Case

According to court documents, Fogel, a U.S. citizen, maintained an undeclared bank account held in the name of a foreign corporation at the Luxembourg branch of Bank Leumi. The undeclared foreign bank account and foreign corporation were set up with the assistance of David Kalai, a tax return preparer who owned United Revenue Service (URS). In December 2014, David Kalai and his son, Nadav Kalai, were convicted in the Central District of California of conspiracy to defraud the United States for helping certain URS clients set up foreign corporations and undeclared bank accounts to evade U.S. income taxes and for willfully failing to file FBARs for an undeclared foreign account that they controlled.

According to court documents and evidence introduced at the trial of David and Nadav Kalai, Fogel was a doctor who operated several managed health care businesses. David Kalai suggested to Fogel that he could reduce his taxes by transferring money to a foreign bank account held in the name of a foreign corporation. David Kalai advised Fogel to open up the bank account that was set up in the name of a British Virgin Islands corporation. At a meeting facilitated and attended by David Kalai at the Beverly Hills branch of Bank Leumi, Fogel executed documents to open his Luxembourg bank account at Bank Leumi, becoming one of the many Bank Leumi clients to do so. According to court documents, Fogel diverted at least $8 million to his undeclared bank account at Bank Leumi’s branch in Luxembourg.

Fogel has agreed to pay a civil penalty in the amount of approximately $4.2 million to resolve his civil liability with the IRS for failing to file FBARs. Fogel faces a statutory maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss to any person, whichever is greater.

IRS Recent Onslaught Against Bank Leumi Clients Continues

The Fogel Case is another example of the recent IRS series of victories against former Bank Leumi clients. It is also a direct fallout of the Kalai Case (David Kalai worked with a number of Bank Leumi clients). Bank Leumi itself already admitted late last year to helping its US customers evade income taxes and hide assets.

Bank Leumi Clients and Clients from Other Israeli Banks Should Expect Continuous Pressure from the IRS

With the information already disclosed by other Bank Leumi clients to the IRS as part of their voluntary disclosures through 2011 OVDI, 2012 OVDP and 2014 OVDP, it becomes clear that the IRS has gathered sufficient evidence to investigate and successfully prosecute other Bank Leumi clients, current and former. Bank Leumi itself also agreed to help DOJ efforts against its Bank Leumi clients. It appears that this IRS onslaught against Bank Leumi clients is likely to affect disproportionately the Jewish communities in New York, California and Florida.

However it is not only the Bank Leumi clients that should be worried; as part of its deal with the US Department of Justice, Bank Leumi is required to help the DOJ investigations of other Israeli banks. Given the fact that Bank Leumi is the second largest bank in Israel, one can expect that the information provided by Bank Leumi and Bank Leumi clients is likely to affect all major banks in Israel.

Voluntary Disclosure Options Should Be Explored by Bank Leumi Clients and Clients of Other Israeli Banks

The Fogel case is a somber reminder to Bank Leumi clients that time is running out. For Bank Leumi clients with undisclosed foreign accounts, there is now a high chance of an IRS investigation, imposition of civil penalties and even of criminal prosecution.  Hence, it appears that the best course of action of the Bank Leumi clients and customers of other Israeli banks is to explore their voluntary disclosure options as soon as possible.

Contact Sherayzen Law Office for Help With Your Undisclosed Israeli Accounts

If you have undisclosed foreign financial accounts and other foreign assets in Israel or through an Israeli bank (and especially if you are one of the Bank Leumi clients), contact Sherayzen Law Office for professional legal and tax help as soon as possible.

Once our experienced international tax law firm will review the facts of your case and recommend the voluntary disclosure options available in your case; you will be able to choose the voluntary disclosure option that best appeals to you. We will then prepare all of the necessary legal documents and tax forms, and Mr. Sherayzen will personally negotiate the final settlement of your case with the IRS, bringing you into full US tax compliance.

So, Contact Us Now to Schedule Your Confidential Consultation!

Streamlined Domestic Offshore Compliance Process

In a previous article, I discussed the eligibility requirement with respect to the Streamlined Domestic Offshore Procedures. In this article, I would like to explore the specific filing requirements under the Streamlined Domestic Offshore Procedures.

As a side note, it is important to emphasize that this is just an educational article on the general overview of technical filing requirements. However, this article does not constitute legal advice and omits some very important complexities that may arise in individual cases. This is why I strongly discourage pro se (i.e. self-representation) disclosures under the Streamlined Domestic Offshore Procedures. On the contrary, the decision to engage in the Streamlined Domestic Offshore option should only be handled by an experienced international tax lawyer.

The Streamlined Domestic offshore filings can be organized in the following seven parts. Note that not all of the discussed requirements may apply in some cases and additional documents may be required in other cases.

1. Streamlined Domestic Offshore Procedures: U.S. Tax Returns

Very precise instructions were issued by the IRS with respect to filing U.S. tax returns under the Streamlined Domestic Offshore procedures. For each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the taxpayer must submit Form 1040X together with any of the required information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621).

The taxpayer should include at the top of the first page of each delinquent or amended tax return and at the top of each information return “Streamlined Domestic Offshore” written in red to indicate that the returns are being submitted under these procedures. The IRS warns that this is critical to ensure that the taxpayer’s returns are processed through Streamlined Domestic Offshore Procedures. My practice is to apply the same stamp to each of the required information returns submitted under the Streamlined Domestic Offshore Procedures, even if these returns are attached to the amended tax returns.

Two important issues must be kept in mind when submitting tax returns under the Streamlined Domestic Offshore Procedures. First, the information returns mentioned above (e.g. Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) should be submitted with the amended U.S. income tax returns even if these information returns would normally not be submitted with the Form 1040 had the taxpayer filed a complete and accurate original return.

Second, the taxpayer may not file delinquent income tax returns (including Form 1040, U.S. Individual Income Tax Return) using Streamlined Domestic Offshore Procedures. This is one of the most critical differences between the Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures.

2. Streamlined Domestic Offshore Procedures: Payment of Tax Due

Together with the U.S. tax returns, the taxpayer should submit the payment of all tax due as reflected on the tax returns and all applicable statutory interest with respect to each of the late payment amounts. The taxpayer’s taxpayer identification number must be included on each check. Under the Streamlined Domestic Offshore Procedures, the taxpayer is not required to pay any failure-to-pay penalties and accuracy-related penalties,

3. Streamlined Domestic Offshore Procedures: FBARs

The Streamlined Domestic Offshore Procedures follow the FBAR statute of limitations and require the taxpayer to file delinquent FBARs for each of the most recent 6 years for which the FBAR due date has passed. The FBARs should be filed according to the FBAR instructions and they should include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures.

All FBARs must be e-filed at FinCen. On the cover page of the electronic form, select “Other” as the reason for filing late. An explanation box will appear. In the explanation box, enter “Streamlined Filing Compliance Procedures.” While not required, it may be beneficial to include a more expanded statement to briefly state the circumstances – it is the job of an international tax attorney to critically look at his client’s case and see if this is the right strategy.

4. Streamlined Domestic Offshore Procedures: Payment of the Miscellaneous Offshore Penalty

In a stark contrast to Streamlined Foreign Offshore Procedures, the Streamlined Domestic Offshore Procedures option requires the participating taxpayers to pay the Title 26 Miscellaneous Offshore Penalty of 5%. The definition of the Title 26 Miscellaneous Offshore Penalty is beyond the scope of this article; however, you can read this article I posted earlier for a more elaborate discussion of this penalty and how it is calculated.

The check for the payment of the Miscellaneous Offshore penalty should be made payable to the “United States Treasury” and the taxpayer’s taxpayer identification number must be included on the check.

5. Streamlined Domestic Offshore Procedures: Certification of Non-Willfulness (IRS Form 14654)

This is the most critical part of the voluntary disclosure package under the Streamlined Domestic Offshore Procedures. The taxpayer must complete and sign Form 14654, “Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures”. The taxpayer must submit the original signed Form 14654 to the IRS. Furthermore, he must also attach copies of the statement to each tax return and information return being submitted through Streamlined Domestic Offshore Procedures.

The IRS warns that failure to submit this statement, or submission of an incomplete or otherwise deficient statement, will result in returns being processed in the normal course without the benefit of the favorable terms of the Streamlined Domestic Offshore Procedures.

At this point, the IRS does not currently require the attachment of copies of Form 14654 to FBARs, but this may change in the future.

6. Streamlined Domestic Offshore Procedures: Late Deferral Requests

The taxpayer may also use the Streamlined Domestic Offshore Procedures to make retroactive elections requests. If the taxpayer seeks relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by an applicable treaty, he should submit the following items as part of his disclosure package under the Streamlined Domestic Offshore Procedures:

a). A statement requesting an extension of time to make an election to defer income tax and identifying the applicable treaty provision;

b). A dated statement signed by you under penalties of perjury describing: (i) the events that led to the failure to make the election; (ii) the events that led to the discovery of the failure, and (iii) if the taxpayer relied on a professional advisor, the nature of the advisor’s engagement and responsibilities; and

c). For relevant Canadian plans, a Form 8891 for each tax year and each plan and a description of the type of plan covered by the submission.

7. Streamlined Domestic Offshore Procedures: Mailing Address as of January 29, 2015

Once the above-described documents are gathered into one package (together with the payments), this package should be sent in paper format to the following address:

Internal Revenue Service
3651 South I-H 35Stop 6063 AUSC
Attn: Streamlined Domestic Offshore
Austin, TX 78741

This address may only be used for returns filed under Streamlined Offshore Domestic Procedures and may change over time; so an international tax lawyer should verify any changes to the address prior to submission of any documents under the Streamlined Domestic Offshore Procedures.

Contact Sherayzen Law Office for Legal Help with Your Voluntary Disclosure Under Streamlined Domestic Offshore Procedures

If you have undisclosed foreign financial accounts and other assets, please contact Mr. Eugene Sherayzen an experienced tax attorney, owner of Sherayzen Law Office for legal and tax help. Our experienced international tax firm specializes in offshore voluntary disclosures and we can help you.

Contact Us to Schedule Your Confidential Consultation!