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EU Automatic Exchange of Banking and Beneficial Ownership Data Approved

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On November 22, 2016, the European Parliament approved the automatic exchange of banking and beneficial ownership data across the European Union. The directive received an overwhelming support from the Parliament: 590 members voted “yes”, 32 – “no”, and 64 did not vote.

Since the original proposal was already approved by the EU Council on November 8, 2016, the only issue left before the directive will come into force will be the final adoption of the directive by EU Council. Once the directive on the automatic exchange of banking and beneficial ownership data is adopted by the Council, the member states will have until December 31, 2017, to implement it.

The directive represents a major undertaking with respect to the automatic exchange of banking and beneficial ownership data. Once it is adopted, the directive will allow tax authorities of every EU member state to automatically share the banking information such as account balances, interest income and dividends. Moreover, the directive also requires the EU member states to create registers recording the beneficial ownership of companies and trusts. This means that the tax authorities of all EU member states will finally acquire access to the information regarding the true beneficiaries of foreign trusts and opaque corporate structures.

The idea behind the new legislation on the automatic exchanges of banking and beneficial ownership data is to provide the EU member states with tools to fight cross-border fraud and tax evasion, preserving the integrity of their domestic tax systems.

However, it appears that there are still serious implementation issues with respect to the new directive. The most serious problem is that the directive merely allows the automatic exchange of banking and beneficial ownership date in the EU, but it does not obligate the member states to do so. Furthermore, the banking industry’s role in the facilitation of tax evasion is not addressed at all by the legislature.

After the directive on the automatic exchange of banking and beneficial ownership date is adopted, the European Parliament is going to take up the legislation to provide for a cross-border method for accessing the shared information.

An interesting question for US taxpayers is whether any of the information acquired through the EU sharing mechanism will be shared with the IRS through FATCA. The likelihood of this scenario is fairly strong and may further expose noncompliant US taxpayers to IRS detection.

US Income Tax Obligations of Green Card Holders: General Overview

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There is a common misconception among Green Card Holders (a common name for US permanent residents) that their US income tax obligations are limited in nature in comparison to US citizens. In this article, I seek to dispel this erroneous myth and provide some general outlines of the US income tax obligations of Green Card Holders.

US Income Tax Obligations of Green Card Holders: Worldwide Income Reporting

I receive a lot of phone calls from Green Card holders who believe that their US income tax reporting obligations are limited only to US-source income (sourcing of income, by the way, is also a very complex subject and I often see egregious mistakes committed even by experienced accountants).

This is not correct. In fact, US permanent residents and US citizens are both considered to be “tax residents of the United States.” US tax residents are required to report their worldwide income on US tax returns and pay US income taxes on foreign-source income (and, obviously, US-source income).

Thus, if you have a Green Card and you have foreign assets (such as foreign bank and financial accounts, foreign businesses, foreign trusts, et cetera), you must report the income from such foreign assets on your US tax returns.

Be careful! You must remember that all foreign income must be reported in US dollars and according to US tax laws. Leaving aside the issue of currency conversion (which is a topic for another article), the reporting of foreign income under US tax laws may be extremely challenging because foreign tax laws may treat this income in a different manner. Let me emphasize this point – the treatment of income under foreign local tax rules may not actually be the same as the treatment of the same income under US tax rules.

For example, Assurance Vie accounts in France may be completely tax-exempt if certain conditions are met. However, the annual income from these accounts must be reported on US tax returns.

Moreover, to make matters worse, these accounts may contain PFIC (Passive Foreign Investment Company) investments which are treated in a very complex and generally unfavorable manner under US tax laws. The calculation of US tax liability in this case may be extremely complex (especially since the French banks are not required to keep the kind of information that is necessary to properly calculation PFIC tax and interest).

US Income Tax Obligations of Green Card Holders: Reporting of Foreign Bank and Financial Accounts

As US tax residents, the Green Card holders are also required to disclose their ownership of certain foreign bank and financial accounts to the IRS. Many US permanent residents are shocked to learn about these requirements and the draconian penalties associated with failure to file the required information reports.

The top two bank and financial account reporting requirements are FinCEN Form 114 (known as “FBAR” – the Report of Foreign Bank and Financial Accounts) and Form 8938 (which was born out of FATCA). Other forms, such as Form 8621, may apply.

It is beyond the scope of this article to discuss these requirements in detail. However, it is impossible to overstate their importance, especially the FBAR, due to potentially astronomical non-compliance penalties (including criminal penalties). You can find more information about these requirements at sherayzenlaw.com.

US Income Tax Obligations of Green Card Holders: Reporting of Foreign Business Ownership

Many US permanent residents are surprised to find out that they may be required to provide detailed reports about their foreign businesses – corporations, partnerships and disregarded entities. Indeed, Green Card holders may be subject to burdensome and expensive US reporting requirements on Forms 5471, 8865, 926, 8938, et cetera. These forms may require Green Card holders to provide foreign financial statements translated under US accounting standards, including US GAAP (Generally Accepted Accounting Practices).

Again, you can find more information about these requirement at sherayzenlaw.com.

US Income Tax Obligations of Green Card Holders: Reporting of Foreign Trusts

Another complex trap for Green Card Holders is reporting of an ownership or a beneficiary interest in a foreign trust (generally, on Form 3520). This complicated topic is beyond the scope of this article, but you can find more information about these requirements at sherayzenlaw.com.

US Income Tax Obligations of Green Card Holders: Other Reporting Requirements

There are numerous other US income tax obligations of Green Card Holders that may apply. Moreover, US has multiple income tax treaties with various countries which may modify your particular tax situation. In order to fully determine your US tax obligations as a Green Card holder, it is best to consult with an experienced international tax attorney.

Contact Sherayzen Law Office for Help With Your US Income Tax Obligations

Sherayzen Law Office is a specialized international tax law firm which is highly experienced in helping US Permanent Residents with their US income tax obligations and reporting requirements. One of the unique features of our firm is that our tax team provides both legal and accounting services to our clients throughout the world.

Contact Us Now To Secure Professional Help and Avoid (or Rectify) Costly Mistakes!

BSI SA is the First Bank to Reach Resolution Under Swiss Bank Program

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On March 30, 2015, the US Department of Justice announced that BSI SA, one of the 10 largest private banks in Switzerland, was the first bank to reach a resolution under the DOJ Swiss Bank Program.

Background Information

The Swiss Bank Program, which was announced on August 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States. Swiss banks eligible to enter the program were required to advise the department by December 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared United States-related accounts. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

“Because of the department’s continuing efforts to root out offshore tax evasion, Swiss banks are operating much differently today than they did just a few years ago, and the department’s Swiss Banking Program is a big part of that change,” said Acting Deputy Attorney General Sally Quillian Yates. “When we announced the program, we said that it would enhance our efforts to pursue those who help facilitate tax evasion and those who use secret offshore accounts to evade taxes. And it has done just that. We are using the information that we have learned from BSI and other Swiss banks in the program to pursue additional investigations into both banks and individuals.”

Since 2009, the department has charged more than 100 offshore bank accountholders, dozens of facilitators, and financial institutions. The department’s offshore enforcement efforts have reached far beyond Switzerland, as evidenced by publicly announced actions involving banking activities in India, Luxembourg, Liechtenstein, Israel and the Caribbean.

“Today’s action sends a clear message to anyone thinking about keeping money offshore in order to evade tax laws,” said Chief Richard Weber of IRS-Criminal Investigation (CI). “Fighting offshore tax evasion continues to be a top priority for IRS-CI and we will trace unreported funds anywhere in the world. IRS-CI special agents are our nation’s best financial investigators, trained to follow the money and enforce our country’s tax laws to ensure fairness for all.”

BSI – DOJ Non-Prosecution Agreement

According to the terms of the non-prosecution agreement signed on March 30, 2015, BSI agrees 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 $211 million penalty in return for the department’s agreement not to prosecute BSI for tax-related criminal offenses.

BSI had more than 3,000 active United States-related accounts after 2008, many of which it knew were not disclosed in the United States. In resolving its criminal liabilities under the program, BSI provided extensive cooperation and encouraged hundreds of U.S. accountholders to come into compliance. BSI is also assisting with ongoing treaty requests.

BSI’s Past Activities

BSI helped its U.S. clients create sham corporations and trusts that masked the true identity of its U.S. accountholders. Many of its U.S. clients also opened “numbered” Swiss bank accounts that shielded their identities, even from employees within the Swiss bank. BSI acknowledged that in order to help keep identities secret, it issued credit or debit cards to many U.S. accountholders without names visible on the card itself.

BSI not only helped U.S. clients shield their identity from the Internal Revenue Service (IRS), but helped them repatriate cash as well. BSI admitted that its relationship managers and their U.S. clients used code words in emails to gain access to funds.

Consequences for US Taxpayers With Undisclosed Foreign Accounts

The consequences of the BSI’s participation in the DOJ Program for Swiss Banks are far reaching for the US taxpayers with undisclosed foreign accounts, particularly BSI accounts.

First, the most immediate consequence of the BSI’s Non-Prosecution Agreement is the higher OVDP penalty. Most U.S. taxpayers who enter the IRS offshore voluntary disclosure program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts. On August 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement. With today’s announcement of BSI’s non-prosecution agreement, its noncompliant U.S. accountholders must now pay that 50 percent penalty to the IRS if they wish to enter the OVDP program.

Second, as part of its participation in the DOJ Program for Swiss Banks, BSI provided a very large amount of information regarding its US accountholders as well as individuals who facilitated US tax evasion. This means that these individuals are at the very high risk of being investigated and/or prosecuted by the IRS for tax non-compliance.

Third, as part of its participation in the DOJ Program for Swiss Banks, BSI (and other banks in the Swiss Bank Program) also provided detailed information to the DOJ about transfers of money from Switzerland to other countries. The Tax Division and the IRS intend to follow that money to uncover additional tax evasion schemes.

This means that any US taxpayers who transferred the money out of Switzerland to avoid Swiss bank disclosure are at very high risk of the IRS detection.

What Should US Taxpayers with Undisclosed BSI and Other Swiss Bank Accounts Do?

If you are a US taxpayer who has (or had any point since 2008) undisclosed financial accounts at BSI and any other Swiss bank, you should contact an international tax lawyer to consider your voluntary disclosure options as soon as possible.

What if voluntary disclosure is no longer possible due to investigation by the IRS? The answer that your international tax lawyer will give you is likely to depend on the facts of the case. In some cases, it may be best to pursue a noisy voluntary disclosure option. In other cases, it may be best to contact the IRS and work with them directly to reduce the penalties.

“An individual is not culpable simply because he or she is identified by a bank within the program,” said Acting Assistant Attorney General Caroline D. Ciraolo of the department’s Tax Division. “With that said, the department strongly encourages those individuals and entities currently under indictment, under investigation, or who have concerns regarding their potential criminal liability to contact and fully cooperate with the department to reach a final resolution.”

Contact Sherayzen Law Office for Professional Help With Undisclosed Foreign Accounts

If you have (had at any point since the year 2008) undisclosed foreign accounts (whether BSI accounts or any other foreign bank), you should contact the international tax law firm of Sherayzen Law Office for experienced professional help.

We have helped hundreds of US taxpayers around the globe to bring their US tax affairs in compliance with the simultaneous goal of reducing the penalty exposure to a reasonable amount under the IRS rules. And we can help You!

Contact Us to Schedule Your Confidential Consultation Now!

IRS 2013 Budget Proposal Emphasizes International Tax Enforcement

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Every year, the President has to submit a budget request to U.S. Congress for federal agencies, including the Internal Revenue Service. In February of 2012, the IRS posted the following information regarding its budget.

Administration’s fiscal year (FY) 2013 budget request for the Internal Revenue Service is approximately $12.8 billion, a $944.5 million increase (8%) over the FY 2012 enacted level.

A significant portion of the increase from FY 2012 represents the Administration’s request to restore lost revenue resulting from reductions in IRS funding made over the past two years. This request is designed to provide the resources necessary to administer and enforce the current tax code, implement recent changes to the law to update the Code and serve the American taxpayer in a timely manner.

In FY 2011, the IRS collected $2.415 trillion in taxes, representing 92 percent of federal government receipts. The IRS processed more than 144.7 million individual returns during the 2011 filing season and issued almost 110 million refunds totaling $345 billion.

The IRS consistently achieves a high return on investment for its activities while running a fiscally disciplined operation. In FY 2013, the IRS expects to identify nearly $71 million in cost savings from increased use of electronic return filing, reductions in non-case related travel and streamlining operations.

Enforcement Program

IRS Enforcement Program is projected to receive the lion’s share of the increase. The FY 2013 budget includes $403 million in new IRS enforcement activities, which are expected to raise $1.48 billion in revenue annually at full performance, once new hires are fully trained and develop broader experience by FY 2015. This is a 4.3-to-1 return on investment. The return on investment is even greater when factoring in the deterrence value of these investments and other IRS enforcement programs, which is conservatively estimated to be at least three times the direct revenue impact.

The enforcement budget also includes $200 million in additional examination and collection programs that will generate more than $1.1 billion in additional annual enforcement revenue by FY 2015. Investments such as these in IRS enforcement programs are especially important to further the IRS’ mission of improving tax compliance.

International Tax Compliance Emphasized by the IRS

International tax compliance is specifically emphasized by the IRS. The IRS will continue to address offshore tax evasion by individuals through a combined “carrot and stick” approach – special offshore voluntary disclosure program and increased examinations and prosecutions.

International tax compliance will also concern domestic businesses operating abroad and foreign businesses owned by U.S. taxpayers. In order to ensure business entity compliance, the IRS will provide additional international technical specialists to increase coverage of complex international transactions.

Contact Sherayzen Law Office for Tax Help with International Tax Compliance Issues

If you have any issues regarding international tax compliance with U.S. laws and regulations, contact Sherayzen Law Office. Our experienced international tax firm will review the facts of your case, analyze the available options, propose a concrete plan of action with respect to your U.S. tax compliance issues, and implement this plan (including drafting and completing the necessary tax documents and forms).