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Credinvest Bank Signs Non-Prosecution Agreement

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On June 3, 2015, the US Department of Justice (“DOJ”) announced that Banca Credinvest SA (Credinvest Bank), together with Rothschild Bank, signed a Non-Prosecution Agreement that finalized Credinvest Bank’s participation in the DOJ Program for Swiss Banks.

Credinvest Bank History

Located in Lugano, Switzerland, Credinvest Bank started operations as a fully licensed bank in 2005. Credinvest Bank offered a variety of services that it knew could assist, and that did assist, U.S. clients in concealing assets and income from the IRS, including hold mail service and numbered accounts. Credinvest Bank did not set up any formalized internal reporting regarding U.S. clients and did not adopt any procedures to ascertain or monitor the compliance of its U.S. clients with their U.S. tax obligations. In late 2008, an external asset manager referred 11 accounts to Credinvest Bank, all of which were for U.S. clients who had left UBS. The bank delegated to that external asset manager the primary management of those accounts and failed to ascertain the compliance of those clients with their U.S. tax obligations. The bank thus aided and assisted those clients in concealing their accounts from U.S. authorities. Since August 1, 2008, Credinvest Bank had 31 U.S.-related accounts with just over $24 million in assets.

Credinvest Bank Penalty and Disclosures

As other banks in the DOJ Program for Swiss Banks, Credinvest Bank mitigated some of its penalties, but it will still have to pay a penalty of $3.022 million.

In addition, as part of its participation in the DOJ Program for Swiss Banks, Credinvest Bank made a complete disclosure of its cross-border activities, provided detailed information on an account-by-account basis for accounts in which US taxpayers have a direct or indirect interest, and provided detailed information regarding transferred funds to other banks. It is not known at this point if the IRS made any treaty requests to Credinvest Bank.

The most immediate impact of Rothschild Bank Non-Prosecution Agreement will be felt by US accountholders who wish to enter OVDP after June 3, 2015 – their penalty rate will go up from 27.5 percent of the highest value of their foreign accounts and other assets included in the OVDP penalty base to a whopping 50 percent penalty rate.

What Credinvest Bank Non-Prosecution Agreement Means to US Taxpayers

Credinvest Bank Non-Prosecution Agreement is likely to have three important consequences for US taxpayers with undisclosed accounts. First, US taxpayers with undisclosed accounts at Credinvest Bank will now face the higher 50% penalty rate in the OVDP program, instead of the regular 27.5% penalty rate.

Second, US taxpayers who attempted to conceal their Credinvest Bank accounts by closing them and transferring them to other banks will now face an increased risk of IRS detection due to the fact that the IRS now has the transfer information from Credinvest Bank. It is also possible that they may have received this information as part of another Swiss bank’s disclosure under the DOJ Program for Swiss Banks.

Finally, Credinvest Bank participation in the DOJ Program for Swiss Banks is one more reminder that, in this FATCA world, US taxpayers with undisclosed foreign accounts are playing a Russian roulette with their future by persevering in their non-compliance. The IRS may receive information regarding their accounts from various sources – DOJ Program is just one of them.

US Taxpayers With Undisclosed Foreign Accounts Should Explore Voluntary Disclosure

At this point, if you are a US taxpayer with undisclosed foreign accounts, please consult the experienced international tax team of Sherayzen Law Office. Our professional legal team has helped hundreds of US taxpayers around the world and we can help you!

Contact US to Schedule Your Confidential Consultation Now!

Filing an Extension for US Taxpayers Residing Outside of the United States

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As is commonly known, US taxpayers who file on a calendar year basis have a filing due date of April 15th. In general, if a tax is owed, it should be paid by the due date of your tax return, without regard to any extension of time for filing the return. Most US taxpayers who reside in the United States are aware that they can obtain a tax return filing extension. But what if you are one of the numerous US taxpayers residing outside of the United States when a tax return is due? Can an extension be filed, and if so, will any penalties be applied if the tax owed is not paid on time? Will interest be owed on the unpaid tax?

This article strives to answer these questions and explain different types of extensions that the IRS may grant for US taxpayers who are not in the country when their returns are due.

Extension Options for US Taxpayers Residing Outside of the United States

In general, there are four possible types of extensions the IRS may grant for US taxpayers who are out of the country: an automatic two-month extension, an automatic six-month extension (in reality, this is a four-month extension), an additional extension for taxpayers residing outside of the United States, and an extension of time to meet tests (also for the US taxpayers residing outside of the United States).

The information contained in this article is intended for general knowledge, and does not constitute tax or legal advice. If you have further questions, please contact the experienced US-International tax law firm of Sherayzen Law Office, Ltd.

Automatic Two-Month Extension for US Taxpayers Residing Outside of the United States

Taxpayers are allowed an automatic two-month extension to file their return and pay federal income taxes owed if they are US citizens or resident aliens, and on the regular due date of the return, they are either US taxpayers residing outside the United States and Puerto Rico or their post of duty is outside the US and Puerto Rico (or if they are in military or naval service on duty outside the US and Puerto Rico).

In order to qualify for this extension, taxpayers must attach a statement to their returns demonstrating which of these two circumstances they meet. Note though, that even if taxpayers are granted this extension (or any extension detailed in this article), they will still have to pay any interest on any tax liability owed by the regular due date of their return (April 15th for calendar year taxpayers).

Automatic Six-Month Extension for US Taxpayers Residing Outside of the United States

In addition to the automatic two-month extension, US taxpayers who are not able to file their returns on time by the due date can generally get an automatic six-month extension of time to file. The two-month and the six-month extensions start at the same time; so, in reality, this is a merely four-month additional extension for US taxpayers residing outside of the United States.

It is important to emphasize that this additional automatic extension however does not extend the time to pay.

In order to get this automatic extension, the taxpayer must file Form 4868 or use the IRS efile system showing a correctly-estimated tax liability based on all available information. However, if a taxpayer intends for the IRS to figure his or her tax, or is under a court order to file by the regular due date, they may not be eligible for this extension

Additional Extension of Time (Two-Months) for US Taxpayers Residing Outside of the United States

In addition to the six-month extension, a taxpayer who is out of the country can also request a discretionary two-month additional extension of time to file his or her tax return (to December 15 for calendar year taxpayers) by sending the IRS a letter detailing the reasons why the additional two-month extension is necessary. The letter needs to be sent by the extended due date (October 15 for calendar year taxpayers) to the Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0045 address. Check irs.gov for any mailing changes and updates.

Note that taxpayers will not receive any notification from the IRS unless their requests are denied. In addition, taxpayers who have an approved extension of time to file Form 2350 (described below) will not be able to request the discretionary two-month additional extension.

Extension of Time to Meet Tests for US Taxpayers Residing Outside of the United States

In general, a taxpayer cannot get an extension of more than six months (or eight months if you count the additional extension of time for taxpayers residing outside of the United States). However, an exception may exist if a taxpayer is outside the US and meets certain requirements. A taxpayer may be granted an extension of more than six months to file a tax return if time is needed to meet either the bona fide residence test or the physical presence test in order to qualify for either the foreign earned income exclusion or the foreign housing exclusion or deduction (see IRS rules for specifics of the exclusion or deduction).

Taxpayers should request an extension of time to meet tests if all three of the following factors are applicable: 1) They are US citizens or resident aliens, 2) they anticipate meeting either the bona fide residence test or the physical presence test, but not until after their tax return are due, and 3) their tax homes are in foreign countries throughout the period of bona fide residence or physical presence, whichever applies.

In general, if a taxpayer is granted this extension it will typically be 30 days beyond the date on which either the bona fide residence test or the physical presence test can reasonably be expected to be met. (If a taxpayer has moving expenses that are for services performed in two years, the extension may be granted as long as an until after the end of the second year).

To apply for this extension, Form 2350 (“Application for Extension of Time To File US Income Tax Return”) will need to be filed by the due date for filing a taxpayer’s return. The IRS notes, “Generally, if both your tax home and your abode are outside the United States and Puerto Rico on the regular due date of your return and you file on a calendar year basis, the due date for filing your return is June 15.” Note that if a taxpayer meets either test, but happens to file a tax return before the test is actually met, the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction can subsequently be claimed on a Form 1040X.

Contact Sherayzen Law Office for Professional Help with Your Tax Returns as a Taxpayer Residing Outside of the United States

If you are a US taxpayer who is residing outside of the United States, contact Sherayzen Law Office for professional help with your US compliance. In additional to preparing your US tax return, we will do a thorough overview of your other potential US tax compliance requirements (such as PFICs, FBARs, Form 8938, et cetera) so that you remain in full compliance with US tax laws.

Contact Us to schedule a Confidential Consultation!

Foreign Tax Credit: General Overview

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US tax residents and citizens are taxed based upon their worldwide income. This can often result in individuals being subject to double taxation. To provide relief from this problem, the Foreign Tax Credit (FTC) provisions were enacted. There are two types of FTC’s, the direct credit and the indirect credit.

Direct Foreign Tax Credit

In general, IRC Section 901 allows for direct credit for foreign taxes paid by US taxpayers. In general, taxpayers must have directly incurred the taxes paid in order to qualify for the credit. US income tax liability is reduced on a dollar-for-dollar basis under this credit.

Indirect Foreign Tax Credit

If a US corporation conducts operations through a foreign subsidiary, the direct FTC is not allowed for foreign taxes paid by the subsidiary. Instead, for US corporate taxpayers with 10% or more US shareholders that receive actual or constructive dividends from foreign corporation that have paid foreign income taxes, an indirect FTC may be taken. The indirect FTC is determined based upon a specified computation. US corporations that elect the FTC for deem- paid for foreign taxes must “gross up”, or add to income, any dividend income by the amount of deem-paid taxes under IRC Section 78.

Contact Sherayzen Law Office NOW for the FTC Legal Help

This article is intended to give a very brief summary of these issues, and should not be construed as legal or tax advice. Reporting foreign-earned income often necessitates an experienced understanding of complex regulations, IRC statutes, and case law, and IRS penalties for failure to comply can be substantial. If you have further questions regarding your own tax circumstances, Sherayzen Law Office offers professional advice for all of your cross-border, international, and other tax needs. Call now at (952) 500-8159 for a consultation today.