Worldwide Income Reporting Requirement | IRS International Tax Lawyer

Worldwide income reporting is at the core of US international tax system. Yet, every year, a huge number of US taxpayers fail to comply with this requirement. While some of these failures are willful, most of this noncompliance comes from misunderstanding of the worldwide income reporting requirement. In this essay, I will introduce the readers to the worldwide income reporting requirement and explain who must comply with it.

Worldwide Income Reporting Requirement: Who is Affected

It is important to understand that the worldwide income reporting requirement applies to all US tax residents. US tax residents include US citizens, US Permanent Residents (the so-called “green card” holders), taxpayers who satisfied the Substantial Presence Test and non-resident aliens who declared themselves US tax residents on their US tax returns. This is the general definition and there are certain exceptions, including treaty-based exceptions.

Worldwide Income Reporting Requirement: What Must Be Disclosed

The worldwide income reporting requirement mandates US tax residents to disclose all of their US-source income and all of their foreign-source income on their US tax returns. This seems like a very straightforward rule, but its practical application creates many tax traps for the unwary, which I will discuss in a future article.

Worldwide Income Reporting Requirement: Constructive Income and Anti-Deferral Regimes

It is important to emphasize that the worldwide income reporting requirement requires the disclosure not only of the income that you actually received, but also the income that you are deemed to have received by the operation of law. In other words, US tax residents must also disclose their constructive income.

One of the most common sources of constructive income in US international tax law are Anti-Deferral regimes that arise from the ownership of a foreign corporation. The two most common regimes are Subpart F rules (which apply only to a Controlled Foreign Corporation) and the brand-new GILTI  regime. You can find out more about these two highly-complex US tax laws by searching the articles on our website.

Contact Sherayzen Law Office for Professional Help With the Worldwide Income Reporting Requirement

The worldwide income reporting requirement can be extremely complex; you can easily get yourself into trouble with the IRS over this issue. In order to avoid making costly mistakes and correct prior US tax noncompliance in the most efficient manner, you should contact Sherayzen Law Office help. We have helped hundreds of US taxpayers to comply with their US international tax obligations with respect to foreign income and foreign assets, and we can help you!

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IRS Loses Two Offshore Tax Cases: Weil & Baravarian

Last month, a federal jury in Fort Lauderdale, Florida acquitted Raoul Weil, a former top UBS Swiss banking executive, of tax evasion charges. Weil was indicted in 2008 under 18 U.S.C. § 371 (“Conspiracy to commit offense or to defraud United States”) and it was alleged that he helped nearly 17,000 wealthy US persons hide $20 Billion in Swiss bank accounts from the IRS. Weil had been extradited to the US to stand trial after being arrested by Interpol while vacationing in Italy in 2013. He would have faced up to five years in prison and a $250,000 fine, if found guilty. Weil did not testify in the case.

From 2002 through 2007, Weil was head of Swiss Bank’s wealth management business, which included US cross-border business and other businesses. In July of 2007, he became the CEO a division that oversaw the United States cross-border business and world-wide private banking. The verdict for the trial (which began on October 14), was quickly reached in less than an hour and a half of deliberation. According to a news report, Weil’s attorney told the jury that Weil was not culpable because, “There’s no evidence in this case that Mr. Weil knew and much less participated in activities by low-level bankers who were violating the bank’s own policies.” In response, a former DOJ tax division assistant attorney general, Nathan Hochman, was quoted after the verdict stating, “The verdict shows you the difficulty of going after senior management who can at times blame the bank’s customers and lower-level employees for the bank’s mistakes.” Prosecutors also failed to show that “a single overall conspiracy” existed under the law.

Weil was the highest-ranking foreign banker to be charged by the US during its lengthy probe of offshore tax evasion cases. The failure by the IRS and DOJ to obtain a conviction in this case represents a significant setback as they have been very successful in prosecuting such cases (and UBS itself had previously paid a $780 million fine in 2009 and admitted to assisting clients evade US taxes in exchange for non-prosecution).

The jury verdict in Weil’s case comes on the heels of another case in which a retired senior vice president at the Los Angeles branch of a bank headquartered in Tel Aviv, Israel Mizrahi Tefahot Bank Ltd., Shokrollah Baravarian, was acquitted in a federal court of charges of conspiring to defraud the U.S. government and of helping clients prepare false tax returns. Baravarian was alleged to have conspired to conceal the existence of undeclared offshore accounts owned and controlled by U.S. customers by opening them under pseudonyms, code names and the names of nominee entities set up in the British Virgin Islands and the island of Nevis. Like Weil, he also would have faced a potential maximum prison term of five years and a maximum fine of $250,000, if convicted.

Contact Sherayzen Law Office for Help with Your Offshore-Related US Tax Compliance Issues

As can be seen from the two acquittals highlighted above, legal challenges to the IRS and DOJ in offshore tax cases can be successful. Certain US persons who reported foreign accounts through the OVDP may also find that they wish to challenge their FBAR determinations in court. If you have any questions regarding OVDP-related litigation or compliance, please contact our experienced tax practice at Sherayzen Law Office, Ltd.

FBAR Reporting of Foreign Gold and Silver Storage Accounts

There is a great deal of confusion about the reporting of foreign gold and silver storage accounts on the Report of Foreign Bank and Financial Accounts (FBAR). In this article, I would like to set forth the general legal framework for the analysis of the reporting requirements for the foreign gold and silver storage accounts. However, it should be remembered that this article is for educational purposes only and it does not provide any legal advice; whether your particular foreign gold and silver accounts should be reported on the FBAR is a legal question that should be analyzed by an international tax attorney within your particular fact setting.

FBAR Background

FBAR’s official name is FinCEN Form 114 (formerly form TD F 90-22.1). Generally, the FBAR is used by US persons to report foreign bank and financial accounts whenever the aggregate balance on these accounts exceeds the threshold of $10,000. The FBAR applies to accounts which are directly, indirectly and constructively owned; it further applies to situations where a US person has signatory or other authority over a foreign account.

The above description contains numerous terms of art that have very specific meaning (even with respect to such common terms as “US person” and “accounts”). I only provide a very general definition of the FBAR here, but there is plenty of FBAR articles on that you can read to learn more about this requirement.

General Rule for Reporting of Foreign Gold and Silver Storage Accounts

In general, if you have a foreign gold and silver storage accounts, they are reportable on the FBAR as long as the threshold requirement is satisfied. However, as almost everything in international tax law, you have to look closely at the definition of terms. In this case, the critical issue is what situations fall within the definition of foreign gold and silver storage accounts.

What are Foreign Gold and Silver Storage Accounts?

It is important to understand that certain facts and details may play a great role in determining whether one has foreign gold and silver storage accounts – this is why it is so important to have an international tax attorney review the particular facts of your case.

Nevertheless, there are certain general legal concepts that provide helpful guidance to international tax attorneys in their FBAR analysis. The most important FBAR factors for determining whether a particular arrangement is defined as foreign gold and silver storage accounts are two interrelated concepts of “custodial relationship” and “control”.

Generally, where another person or entity has access and/or control of assets or funds on your behalf, the IRS is very likely to find that a custodial relationship exists and all such arrangements would be reportable on the FBAR as foreign gold and silver storage accounts. For example, if one buys gold and silver through BullionVault or Goldmoney (whether allocated or non-allocated), one creates foreign gold and silver storage accounts because BullionVault or Goldmoney would handle the transaction on your behalf and store the precious metals on your behalf (and, as mentioned above, even allocate your holdings to a particular gold or silver bar).

A word of caution: the IRS tends to interpret the definitions of “account” and “custodial relationship” very broadly and one must not indulge oneself with false thoughts of security because one thinks that he was able to circumvent a particular fact setting. Again, the existence of foreign gold and silver storage accounts is a legal question that should be reviewed by an experienced international tax lawyer.

Foreign Gold and Silver Storage Accounts: What about a Safe Deposit Box?

There is a situation that comes up often in my practice (particularly for clients with Australian, Hong Kong and Swiss accounts) with respect to FBAR reporting of precious metals – putting gold, silver and other precious metals in a foreign safe deposit box. There is a dangerous myth that safe deposit boxes are never reportable – this is incorrect.

In general, it is true that precious metals held in a safe deposit box are not reportable, but if and only if no account relationship exists. If there is an account relationship with respect to a safe deposit box, then it would be considered a reportable foreign gold and silver storage account for the FBAR purposes.

What does this mean? Let’s go back to the definition of a custodial relationship cited above – an account relationship exists whenever another person or entity has control of funds or assets on your behalf. If one applies this definition to a safe deposit box, then it is likely that the IRS will interpret any situation where an institution or person has access to a safe deposit box as an existence of an account. Moreover, the IRS is likely to find that foreign gold and silver storage accounts exist where an owner (direct or indirect) of the safe deposit box can instruct the institution to sell the gold from the safe deposit box.

Other Reporting Requirements May Apply to Foreign Gold and Silver Storage Accounts

It is important to mention that FBAR is just one of potential reporting requirements under US tax laws. Other reporting requirements (such as Form 8938, 8621, 5471, 8865 and so on) may apply depending on the nature of the foreign gold and silver storage accounts, form of ownership, whether a foreign entity is involved, and numerous other facts. You will need to contact an experienced international tax lawyer to determine your international tax reporting requirements under US tax laws.

Contact Sherayzen Law Office for Professional Help with Reporting of Foreign Gold and Silver Accounts

If you have unreported foreign gold and silver storage accounts, contact Sherayzen Law Office for professional help. Owner Eugene Sherayzen is an experienced international tax attorney who will thoroughly analyze your case, determine the extent of your current reporting requirements and potential non-compliance liability, analyze your voluntary disclosure options, and implement the preferred legal option (including preparation of all legal documents and tax forms).

Contact Us to Schedule Your Confidential Consultation Now!

Credit Suisse Pleaded Guilty; Disclosure of US-Held Bank Accounts

On May 19, 2014, Credit Suisse AG pleaded guilty to conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and other documents with the IRS. Credit Suisse agreed to pay huge fines and disclose certain information to the IRS and the US DOJ. Let’s look closer at certain parts of this deal and what this means to U.S. taxpayers who still hold undisclosed bank accounts at Credit Suisse or who held such accounts in any years since 2008.

Illegal Activities of Credit Suisse Acknowledged as Part of the Plea

The DOJ stated that, as part of the plea agreement, Credit Suisse acknowledged that, for decades prior to and through 2009, it operated an illegal cross-border banking business that knowingly and willfully aided and assisted thousands of U.S. clients in opening and maintaining undeclared accounts and concealing their offshore assets and income from the IRS.

According to the statement of facts filed with the plea agreement, Credit Suisse employed a variety of means to assist U.S. clients in concealing their undeclared accounts, including by:

assisting clients in using sham entities to hide undeclared accounts;

soliciting IRS forms that falsely stated, under penalties of perjury, that the sham entities were the beneficial owners of the assets in the accounts;

failing to maintain in the United States records related to the accounts;

destroying account records sent to the United States for client review;

using Credit Suisse managers and employees as unregistered investment advisors on undeclared accounts

facilitating withdrawals of funds from the undeclared accounts by either providing hand-delivered cash in the United States or using Credit Suisse’s correspondent bank accounts in the United States;

structuring transfers of funds to evade currency transaction reporting requirements; and

providing offshore credit and debit cards to repatriate funds in the undeclared accounts.

Fines that Credit Suisse Will Pay – A Huge Victory for the US Department of Justice

The giant bank agreed to pay a total of $2.6 billion – $1.8 billion to the Department of Justice for the U.S. Treasury, $100 million to the Federal Reserve, and $715 million to the New York State Department of Financial Services. Earlier this year, Credit Suisse already paid approximately $196 million in disgorgement, interest and penalties to the Securities and Exchange Commission (SEC) for violating the federal securities laws by providing cross-border brokerage and investment advisory services to U.S. clients without first registering with the SEC.

Credit Suisse has also agreed to implement programs to ensure its compliance with U.S. laws, including its reporting obligations under the Foreign Account Tax Compliance Act and relevant tax treaties, in all its current and future dealings with U.S. customers.

“This case shows that no financial institution, no matter its size or global reach, is above the law,” said Attorney General Holder. “Credit Suisse conspired to help U.S. citizens hide assets in offshore accounts in order to evade paying taxes. When a bank engages in misconduct this brazen, it should expect that the Justice Department will pursue criminal prosecution to the fullest extent possible, as has happened here.”

“This prosecution and plea should serve notice that secret accounts and assisting the evasion of income taxes have a high cost,” said U.S. Attorney Boente. “Concealing financial accounts from the U.S. government is not a legitimate part of wealth management or private banking services.”

“Pursuing international tax evasion is a priority area for IRS Criminal Investigation, and we will continue to follow the money here in the United States and around the world” said IRS Commissioner Koskinen. “I want to commend the special agents in IRS-Criminal Investigation for all of their hard work in this area and the close cooperation with the Department of Justice. Today’s guilty plea is another important milestone in ongoing law enforcement efforts to investigate the use of offshore accounts to evade taxes. People should no longer feel comfortable hiding their assets and income from the IRS.”

What Credit Suisse Will Further Disclose as Part of the Plea

This is the part which is most relevant to the U.S. taxpayers who had (or still have) undisclosed bank accounts at Credit Suisse at any point after January 1, 2008.

As part of the plea agreement, Credit Suisse agreed to make a complete disclosure of its cross-border activities, cooperate in treaty requests for account information, provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed, and to close accounts of account holders who fail to come into compliance with U.S. reporting obligations.

What Credit Suisse Guilty Plea Means to US Taxpayers with Undisclosed Credit Suisse Accounts

The guilty plea of Credit Suisse is likely to have a profound impact on U.S. taxpayers with undisclosed accounts. While the UBS case was a landmark victory for the IRS that changed the nature of the international tax enforcement, it was actually much more limited in “exposure” scope with respect to its own US accountholders than the Credit Suisse guilty plea (this is a true testament to how much more powerful the DOJ has become in Switzerland since 2008).

In essence, at this point, any US taxpayers with undisclosed Credit Suisse accounts should now assume that their non-compliant accounts now be closed (unless they do some type of voluntary disclosure) and/or they are likely to be disclosed by Credit Suisse to the IRS if the IRS makes a treaty request. Even worse, for any US taxpayers who had accounts at some point in 2008 and closed them prior to the guilty plea by Credit Suisse, there is no guarantee that these accounts will not be disclosed by Credit Suisse to the IRS. I would even venture to guess that the likelihood of the exposure of these accounts is very high now.

However, the IRS victory over Credit Suisse does not just stop at the Credit Suisse accountholders, but also all banks that dealt with Credit Suisse with respect to these US-owned accounts. This means that US taxpayers who transferred their funds out of Credit Suisse (presumably when they closed their non-compliant accounts) are likely to be at high risk of IRS detection.

Finally, Credit Suisse is likely to disclose to the IRS its main strategies with respect to opening, closing and maintaining non-compliant accounts through a business entity or a trust. This means that the IRS will now be able to initiate investigations based on patterns of activity, without necessarily having specific information about a given account. This means that all US taxpayers who benefitted from Credit Suisse help prior to the guilty plea by the bank, are likely to now be exposed (whether the intention behind this planning was tax evasion or legitimate asset protection).

The upshot of all of these factors is that US taxpayers who have had any undisclosed foreign bank accounts in Credit Suisse since 2008 are likely to be at high risk of IRS criminal investigation with huge FBAR monetary penalty exposure and potential jail sentence.

This means that these US taxpayers with undisclosed Credit Suisse bank accounts should consider their voluntary disclosure options as soon as possible. If the IRS learns about their identity prior to entering into a voluntary disclosure problem, the path to the OVDP (Offshore Voluntary Disclosure Program) may be closed with potentially huge disadvantages to such taxpayers.

Contact Sherayzen Law Office for Help with the Voluntary Disclosure of Your Credit Suisse Accounts

If you have undisclosed Credit Suisse accounts, contact Sherayzen Law Office for professional help. Owner Eugene Sherayzen is an experienced international tax lawyer who will thoroughly review the facts of your case, analyze your voluntary disclosure options, create a comprehensive voluntary disclosure strategy and implements (including preparation of all legal documents and tax forms as well as rigorous IRS representation).

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FBAR Tax Attorney St Louis: Another Swiss Banker Pleads Guilty to Tax Evasion

On March 12, 2014, the IRS and the DOJ announced that Andreas Bachmann, 56, of Switzerland, pleaded guilty to conspiring to defraud the Internal Revenue Service (IRS) in connection with his work as a banking and investment adviser for U.S. customers. It appears (at least from the perspective of an FBAR Tax Attorney St Louis) that Mr. Bachmann helped his U.S. customers conceal assets in secret Swiss Bank Accounts and other tax havens.

FBAR Tax Attorney St Louis: Background Information

In a statement of facts filed with the plea agreement, Mr. Bachmann admitted that between 1994 and 2006, while working as a relationship manager in Switzerland for a subsidiary of an international bank, he engaged in a wide-ranging conspiracy to aid and assist U.S. customers in evading their income taxes by concealing assets and income in secret Swiss bank accounts. Moreover, Mr. Bachmann traveled to the United States twice each year to provide banking services and investment advice to his U.S. customers (note from FBAR Tax Attorney St Louis: this could have been critical information for building the IRS case against Mr. Bachmann).

According to the IRS, Mr. Bachmann also engaged in cash transactions while traveling in the United States. In the course of arranging meetings with U.S. customers, some clients would request that Mr. Bachmann either provide them with cash as withdrawals from their undeclared accounts or take cash from them as a deposit to their undeclared accounts. As part of that process, Mr. Bachmann agreed to receive cash from U.S. customers and used that cash to pay withdrawals to other U.S. clients.

The IRS describes how, in one instance, Mr. Bachmann received $50,000 in cash from one U.S. customer in New York City and intended to deliver the money to another U.S. client in Southern Florida. Airport officials in New York discovered the cash but let Mr. Bachmann keep the money after questioning him (note from FBAR Tax Attorney St Louis: by that time, the IRS was probably already taking interest in Mr. Bachmann). The client in Florida refused to take the money after the client learned about the questioning by New York airport officials, and Mr. Bachmann returned to Switzerland with the $50,000 in cash in his checked baggage. Mr. Bachmann advised the executive management of the subsidiary about the incident with the cash.

The IRS further alleges that Mr. Bachmann also understood that a number of his U.S. customers concealed their ownership and control of foreign financial accounts by holding those accounts in the names of nominee tax haven entities, or structures, which were frequently created in the form of foreign partnerships, trusts, corporations or foundations.

FBAR Tax Attorney St Louis: IRS is Pleased

The IRS and the DOJ seem to be pleased with the result of their investigation. “Today’s plea is just the latest step in our wide-ranging investigations into Swiss banking activities and demonstrates the Department of Justice’s commitment to global enforcement against those that facilitate offshore tax evasion,” said Deputy Attorney General Cole. “We fully expect additional developments over the course of the coming months.”

Mr. Bachmann was charged in a one-count superseding indictment on July 21, 2011, and faces a maximum penalty of five years in prison when he is sentenced on August 8, 2014.

FBAR Tax Attorney St Louis: IRS and DOJ Are Stepping Up Criminal Enforcement of FBARs and International Tax Laws of the United States

As I predicted earlier, the IRS and the DOJ are in high gear of criminal enforcement of FBARs and international tax laws of the United States. As they work through the mountains of information that they received from the U.S. taxpayers participating in the Offshore Voluntary Disclosure Program (now closed) and the defendants, like Mr. Bachmann, I fully expect the enforcement efforts to increase in the near future.

Moreover, with the new information disclosed by the Swiss banks as part of the U.S. Department of Justice (“DOJ”) The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (the “Program”), the IRS will get an unprecedented new fountain of information that will allow it to reach ever further.

FBAR Tax Attorney St Louis: U.S. Taxpayers with Undisclosed Bank Accounts Should Consider Their Voluntary Disclosure Options As Soon As Possible

Given the fact that a large number of Swiss banks that participate in the Program will disclose all of their U.S.-held bank accounts by April 30, 2014 (assuming they have not already disclosed them), U.S. taxpayers with undisclosed accounts in Switzerland must act as soon as possible and consider their voluntary disclosure options. Failure to do so may result in the imposition of willful civil and even criminal penalties.

Contact Sherayzen Law Office for Help With Undisclosed Swiss Accounts

Sherayzen Law Office can help you with the voluntary disclosure of your Swiss accounts. Owner and attorney Eugene Sherayzen is an international tax expert in this field. He will thoroughly analyze the facts of your case and explain to you the available voluntary disclosure options. After you choose the voluntary disclosure option, our firm can prepare all legal documents and tax forms required for your voluntary disclosure, fully implement the ethically available strategies and rigorously defend your position against the IRS.

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