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The IRS Large Business and International Division Organizational Structure

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Almost two years ago, the IRS Large Business and International Division announced long-term changes in its structure as well as its approach to tax enforcement. In the fall of 2015, the IRS completed the first phase of the structural changes in the Division – re-organization of its administrative structure. This structure exists intact today and we fully expect for it to last for a long while. Let’s discuss this current administrative structure of the IRS Large Business and International Division.

IRS Large Business and International Division: Areas of Responsibility

The IRS Large Business and International Division forms a huge part of the IRS. First, it is responsible for the tax compliance enforcement (US domestic and US international) with respect to all corporations, subchapter S corporations, and partnerships with assets greater than $10 million. Most of these businesses employ a large number of employees and their business affairs involve complex accounting principals and tax laws. Second, the Division deals with individual international tax compliance, including offshore voluntary disclosures.

Current Organization of the IRS Large Business and International Division

The IRS Large Business and International Division is currently organized into Support Areas (a smaller part of the Division) and Practice Areas.

The Support areas concentrate on supporting the Practice Areas through data analysis and integrated feedback loop (which is a highly important feature that was incorporated into the Division’s reorganization plan in 2015). The Support areas include Headquarters, Program and Business Solutions (including Technology and Program Solutions and Resource Solutions), Compliance Integration (including Data solutions and the highly-important Compliance Planning and Analytics) and Assistant Deputy Commissioner – International.

The second part of the IRS Large Business and International Division is divided into five Practice Areas and four Compliance Practice Areas. The Practice Areas include: (1) Cross Border Activities, (2) Enterprise Activity, (3) Pass-Through Entities, (4) Treaty and Transfer Pricing Operations and (5) Withholding and International Individual Compliance. US international tax compliance concerns are especially important in areas 1, 4 and 5.

The Compliance Practice Areas basically represent a geographical division of the United States into four tax enforcement areas: Central (which consists of North Central and South Central Fields), Eastern (which consists of Great Lakes and Southeast Fields), Northeastern (which includes North-Atlantic and Mid-Atlantic Fields) and, finally, Western (which includes West and Southwest Fields).

The IRS Large Business and International Division Reorganization Now Entered Into the Second Phase

Since January 31, 2017, the IRS Large Business and International Division reorganization commenced the second phase with the enaction of the first thirteen issue-based IRS Compliance Campaigns. These campaigns represent a new approach to tax enforcement that is believed to fit best the new administrative structure of the division. In the near future, Sherayzen Law Office will update its website with articles dedicated to this important new development.

Guilty Pleas for Secret Swiss-Israeli Bank Accounts | FATCA Lawyer

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On January 18, 2017, three US taxpayers pleaded guilty for hiding millions of dollars in their secret Swiss and Israeli bank accounts (hereinafter “Swiss-Israeli Bank Accounts”) and failing to report these Swiss-Israeli Bank Accounts on their FBARs.

Facts of the Case Involving Secret Swiss-Israeli Bank Accounts

All three defendants are relatives – Mr. Dan Farhad Kalili and Mr. David Ramin Kalili are brothers while Mr. David Shahrokh Azarian is their brother-in-law. They are all residents of Newport Coast, California.

According to the documents filed with the court and statements made in connection with the defendants’ guilty pleas, between May 1996 and 2009, Mr. Dan Kalili opened and maintained several undeclared offshore bank accounts at Credit Suisse and UBS in Switzerland. Similarly, Mr. David Kalili opened and maintained several undeclared accounts at Credit Suisse from February 1999 through at least 2009. He also owned several undeclared accounts at UBS from October 1993 through at least 2008. The brothers also maintained joint undeclared Swiss bank accounts at both UBS and Credit Suisse beginning in 2003 and 2004, respectively.

At the same time, Mr. Azarian opened and maintained several undeclared accounts at Credit Suisse from May 1994 through at least 2009. He also owned several accounts at UBS in Switzerland from April 1997 through at least 2008.

In 2006, we had the appearance of the now famous Ms. Beda Singenberger, a Swiss citizen who owned and operated a financial advisory firm called Sinco Truehand AG. She was indicted in New York on July 21, 2011. The charges were: conspiring to defraud the United States, evade U.S. income taxes, and file false U.S. tax returns. Ms. Singenberger remains a fugitive as of the time of this writing.

In July of 2006, Mr. Dan Kalili, with the assistance of Ms. Singenberger, opened an undeclared account at UBS in the name of the Colsa Foundation, a Liechtenstein entity. As of May 2008, the Colsa Foundation account at UBS held approximately $4,927,500 in assets.

In light of the increased IRS tax enforcement and the UBS case, all three defendants attempted to partially hide their prior ownership of Swiss accounts by moving the assets from one account to another. At the same time, they also tried to legitimize partial ownership of their assets.

Mr. Dan Kalili opened an undeclared account at Swiss Bank A in the name of the Colsa Foundation and in May 2008 and transferred his assets from the UBS Colsa Foundation account to Swiss Bank A. He then made partial disclosure of the Swiss Bank A Colsa account on his individual income tax returns. In 2009, Mr. Dan Kalili opened undeclared accounts at Israeli Bank A and at Bank Leumi, both in Israel. He then closed his joint (with his brother) Credit Suisse account and his own undeclared account and transferred all funds to Israel.

At that time of its closure, the undeclared joint account of Dan and David Kalili at Credit Suisse held approximately $2,561,508 in assets. As of December 2009, Dan Kalili’s undeclared account at Israeli Bank A had the approximate value of $1,569,973 and his undeclared account at Bank Leumi was valued at approximately $2,497,931.

Mr. David Kalili followed almost the same pattern. In August of 2008, he opened an account at Israeli Bank A in Israel and transferred to this account all of his funds from his UBS accounts. He later partially declared the Israeli Bank A account on his individual income tax returns. As of August 2009, Mr. David Kalili’s undeclared account at Israeli Bank A held assets valued at approximately $1,369,489.

Finally, Mr. Azarian also opened an account at Israeli Bank A in Israel in August of 2008. In May of 2009, he closed his Credit Suisse account and transferred all funds to his Israeli account. At the time of its closure, Mr. Azarian’s undeclared account at Credit Suisse held assets valued at approximately $1,903,214.

Neither of the three defendants ever filed an FBAR for their secret Swiss-Israeli Bank Accounts on their FBARs during any of the years 2006-2009.

Criminal and Civil Penalties Imposed For Failure to Declare Foreign Income and Swiss-Israeli Bank Accounts

According to the plea agreements, the criminal and civil penalties were severe. Mr. Dan Kalili, Mr. David Kalili and Mr. Azarian each face a statutory maximum sentence of five years in prison, a period of supervised release and restitution for 2003-2009 tax loss and monetary penalties. The defendants also admitted to committing civil fraud, which exposes them to additional civil fraud penalty.

In addition, each defendant agreed to pay a willful FBAR civil penalty in the amount of 50% of the highest balances of their undeclared Swiss-Israeli Bank Accounts. Mr. Dan Kalili agreed to pay the FBAR penalty of $2,674,329, Mr. David Kalili agreed to pay the FBAR penalty of $1,325,121 and Mr. Azarian agreed to pay the FBAR penalty of $951,607.

Lessons to Be Learned from the Defendants’ Handling of Their Undeclared Swiss-Israeli Bank Accounts

This case is a classical example of what not to do if one wishes to avoid criminal prosecution. Let’s point out five main mistakes which exposed the taxpayers to the IRS criminal prosecution.

The first mistake is obvious – the defendants willfully failed to declare their Swiss-Israeli bank accounts on their FBARs and the income generated by these accounts on their US tax returns.

The deleterious impact of the first mistake was magnified by the usage of an offshore shell corporation to hide the ownership of the Swiss-Israeli bank accounts (while the entity was concerned mostly with Swiss accounts, it was also used to hide the source of funds on the defendants’ Israeli bank accounts).

Third, the defendants engaged in the evasive pattern of opening and closing foreign accounts in various banks in order to hide them from the IRS. The defendants obviously underestimated the IRS ability to track these accounts and ended up giving the IRS additional powerful indirect evidence of intent to evade taxes and the willfulness of their failures to file FBARs.

Fourth, the taxpayers engaged in partial voluntary disclosure outside of any actual voluntary disclosure program. By doing partial disclosure, the taxpayers provided additional evidence to the IRS of their knowledge of the requirement to report foreign income and properly complete Schedule B. At the same time, the fact that their disclosure was only partial further emphasized the willfulness of their prior failure to disclosure foreign income and foreign assets. The readers should remember that a voluntary disclosure must always be accurate and complete; otherwise, the taxpayers simply give the IRS more evidence of willfulness of their tax noncompliance.

Finally, it does not appear that the taxpayers ever considered doing a true voluntary disclosure which could have limited their penalties and prevented the IRS criminal prosecution. One of the first thing that the taxpayers should always consider once they find out about their noncompliance or the possibility of the IRS detection of such noncompliance is to retain an international tax lawyer to review their voluntary disclosure options. The taxpayers failed to do so in this case and paid a very high price.

Contact Sherayzen Law Office for Professional Help with the Voluntary Disclosure of Your Foreign Income and Foreign Assets, including Swiss-Israeli Bank Accounts

If you have undisclosed foreign income and foreign assets, you should contact Sherayzen Law Office for professional help as soon as possible. Our international tax law firm has successfully helped hundreds of US taxpayers around the world to bring their tax affairs into full compliance with US laws and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Last Swiss Bank Program Category 2 Resolution

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On January 27, 2016, the US Department of Justice (DOJ) declared the last Swiss Bank Program Category 2 Resolution. The Swiss Bank Program was proclaimed on August 29, 2013, and constituted an unprecedented triumph of US economic might over the most formidable bank secrecy bulwark (though, already a greatly weakened one since the 2008 UBS case) which Switzerland had been for hundreds of years.

Under the Swiss Bank Program, the Swiss banks were forced to turn over a large amount of information regarding foreign accounts held by US persons, cooperate with US information requests, and, in case of category 2 banks, pay a fine. In return, the Swiss banks were provided a guarantee against US criminal prosecution in the form of non-prosecution agreements.

The Swiss Bank Program was successful, though not every eligible Swiss bank actually chose to participate in the Program. The most profitable part of the Program consisted of the Category 2 banks, which had to pay fines as a condition of their participation in the Swiss Bank Program.

The first resolution with a Category 2 bank occurred on March 30, 2015. On January 27, 2016, the last Swiss Bank Program Category 2 resolution took place after reaching a Non-Prosecution Agreement with HSZH Verwaltungs AG (HSZH).

In total, the DOJ signed Non-Prosecution Agreements with about 80 banks and collected more than $1.36 billion in Swiss Bank Penalties, including $49 million from the last Swiss Bank Program Category 2 resolution. While this amount pales in comparison with the originally-projected amounts (due to penalty mitigation), the enormous impact the Program has had on the worldwide US tax compliance and convincing foreign governments to accept FATCA render this Program an important success for the US government.

The final Swiss Bank Program Category 2 resolution marked the end of the Category 2 part of the Swiss Bank Program, but an important question remains – will we see the re-appearance of the Swiss Bank Program with Category 2 banks in another country? While the implementation of FATCA reduces the probability of a chance of another program similar to Swiss Bank Program, one cannot fully discount this possibility. It is possible that the IRS will identify another important center (such as the Cayman Islands, Hong Kong, Isle of Mann, Singapore, et cetera) of US tax non-compliance based on the information collected in the Swiss Bank Program and attack this center.

On the other hand, one can also see the appearance of a global “Swiss Bank Program” which banks of any country can enter in order to prevent US criminal prosecution.

Whatever form the future voluntary disclosure program for foreign banks will take, one can be certain that the last Swiss Bank Program Category 2 Resolution with HSZH was not the last IRS enforcement effort with respect to foreign banks.

Société Générale Private Banking Non-Prosecution Agreement

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On June 9, 2015, the Department of Justice announced that Société Générale Private Banking (Suisse) SA has reached a resolution under the DOJ’s Swiss Bank Program.

According to the terms of the non-prosecution agreement, Société Générale Private Banking 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 penalties in return for the department’s agreement not to prosecute these banks for tax-related criminal offenses.

Société Générale Private Banking has had a presence in Switzerland since 1926, and had a U.S.-licensed representative office in Miami from the early 1990s until it closed on August 26, 2013. Société Générale Private Banking opened and maintained accounts for accountholders who had U.S. tax reporting obligations, and was aware that U.S. taxpayers had a legal duty to report to the Internal Revenue Service (IRS) and pay taxes on all of their income, including income earned in Société Générale Private Banking accounts. Société Générale Private Banking knew that it was likely that certain U.S. taxpayers who maintained accounts at the bank were not complying with their U.S. income tax obligations.

Société Générale Private Banking’s U.S. cross-border banking business aided and assisted some U.S. clients in opening and maintaining undeclared accounts in Switzerland and concealing the assets and income the clients held in their accounts from the IRS. SGBP-Suisse used a variety of means to assist U.S. clients in hiding their assets and income, including opening and maintaining accounts for U.S. taxpayers in the name of non-U.S. entities, including sham entities, thereby assisting such U.S. taxpayers in concealing their beneficial ownership of the accounts. Such entities included Panama and British Virgin Island corporations, as well as Liechtenstein foundations. In two instances, an Société Générale Private Banking employee acted as a director of entities that had U.S. taxpayers as beneficial owners. In another instance, upon the death of the beneficial owner of an entity, the heirs opened accounts held by sham entities at Société Générale Private Banking to receive their shares of the assets from the entity account.

Société Générale Private Banking further provided numbered accounts, allowing the accountholder to replace his or her identity with a code name or number on documents sent to the client, and held statements and other mail at its offices in Switzerland, rather than sending them to the U.S. taxpayers in the United States. In addition to these services, Société Générale Private Banking:

Processed requests from U.S. taxpayers for cash or gold withdrawals so as not to trigger any transaction reporting requirements;

Processed requests from U.S. taxpayers to transfer funds from U.S.-related accounts at Société Générale Private Banking to accounts at subsidiaries in Lugano, Switzerland, and the Bahamas;

Opened accounts for U.S. taxpayers who had left UBS when the department was investigating that bank;

Processed requests from U.S. taxpayers to transfer assets from accounts being closed to other Société Générale Private Banking accounts held by non-U.S. relatives and/or friends; and

Followed instructions from U.S. beneficial owners to transfer assets to corprate and individual accounts at other banks in Switzerland, Hong Kong, Israel, Lebanon, Liechtenstein and Cyprus.

Throughout its participation in the Swiss Bank Program, Société Générale Private Banking committed to full cooperation with the U.S. government. For example, Société Générale Private Banking described in detail the structure of its U.S. cross-border business, including providing a list of the names and functions of individuals who structured, operated or supervised the cross-border business at Société Générale Private Banking; a summary of U.S.-related accounts by assets under management; written narrative summaries of 98 U.S.-related accounts; and the circumstances surrounding the closure of relevant accounts holding cash or gold. Société Générale Private Banking also provided information to make treaty requests to the Swiss competent authority for U.S. client account records.

Since August 1, 2008, Société Générale Private Banking held and managed approximately 375 U.S.-related accounts, which included both declared and undeclared accounts, with a peak of assets under management of approximately $660 million. Société Générale Private Banking will pay a penalty of $17.807 million.

US taxpayers who have not yet disclosed their Société Générale Private Banking accounts, but who wish to participate in the 2014 OVDP, are likely to face now a 50% OVDP penalty rate.

BCGE FATCA Letter

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In a previous article, I started the discussion of various FATCA letters issued by banks around the world by concentrating on the HSBC FATCA letter. In this article, I would like to shift focus to a different part of the world and discuss the Swiss format with BCGE FATCA Letter.

BCGE FATCA Letter: General Format

BCGE (Banque Cantonale de Geneve) is determined to comply with FATCA. For this purpose, it developed its own format of a FATCA letter which closely follows the format adopted by most Swiss banks.

BCGE FATCA Letter follows what I call “comprehensive format” (as opposed to the “reference format” followed by HSBC). This means that BCGE FATCA Letter contains all of the main questions within the body of the letter and references only supplementary US forms (like W8BEN and W9). Thus, BCGE FATCA Letter allows BCGE to collect all of the information necessary for its own FATCA compliance in one place and without the need to create any other specialized forms.

It should be noted that the description of the format so far concentrated on the most common BCGE FATCA Letter for individuals, but there are variations in the form for trusts and corporations. Furthermore, there is a variation for the form for certain other circumstances. Since most US account holders who receive a BCGE FATCA are individuals, I will concentrate on the most common format only.

Let’s review each part of the common BCGE FATCA Letter.

BCGE FATCA Letter: Personal Information

The BCGE FATCA Letter commences with the confirmation of the identity and personal information (including place of residence) of the account holder. This section also commences the examination of the account holder’s US tax status by requiring the account holder to list all of his nationalities and the country of birth.

BCGE FATCA Letter: “Per Se” US Status

This is the most critical part of BCGE FATCA Letter because it focuses on the main designations of US person. In particular, this part of BCGE FATCA Letter asks whether the account holder has US national, is a US tax resident (which is asked in two different ways which mean the same thing – lawful permanent resident and the “green card” test), and whether the substantial presence test is satisfied. Definition for the later is provided in a footnote.

If there is at least one affirmative answer to these first four questions, BCGE will automatically classify the account holder as a US person subject to FATCA reporting. Once this determination is made, BCGE FATCA Letter requires the account holder to submit Form W-9 and a special BCGE Form 6387 “Consent to the disclosure of data according to FATCA”. Failure to complete Form 6387 may result in the BCGE designation of the account under FATCA as belonging to a “recalcitrant account holder”.

Please, note that once a status of US person is established, BCGE is very likely to close any securities accounts of a US account holder.

BCGE FATCA Letter Questions 1.5-1.8 on Potential US Status

If the account holder negatively answered the first four questions, the next part of the BCGE FATCA Letter asks a series of questions to see if the account holder if a US person in some other way. Most of these questions also require a submission of Form W-8BEN (with a non-US passport) or W-9.

BCGE FATCA Letter usually contains the following questions. First, whether the account holder was born in the USA or in a US territory (a definition is provided for this term). If the answer is “yes”, but the account holder believes that he is still not a US person, then he must submit Form W-8BEN, a non-US passport or a similar document, and a copy of the certificate of loss of US nationality. If the certificate cannot be produced, BCGE FATCA Letter automatically classifies the account holder as a US person and requires him to submit Form W-9 and a Consent to the disclosure of data under FATCA.

Second, BCGE FATCA Letter asks whether the account holder is a US taxpayer for any other reason – this a “catch all” question to make sure that BCGE does not miss a potential FATCA requirement. BCGE FATCA Letter lists a number of possibilities of how one becomes a US person : joint tax status with a US spouse, in the process of renouncing US nationality or green card, effectively connected income and owner of a US property. Again, supporting documentation or Form W-9 with the Disclosure Consent under FATCA are required.

Finally, BCGE FATCA Letter addresses the remaining potential for the account holder to be a US taxpayer such as US mailing address, care-of address, postbox, and fixed or mobile telephone number. If the account holder has any of these items, then BCGE FATCA Letter asks him to provide Form W-8BEN with a non-US passport (or similar documentation).

BCGE FATCA letter: Confirmation of Beneficial Ownership Status

By signing BCGE FATCA Letter, the account holder affirms that he is the beneficial owner of the bank account.

BCGE FATCA Letter: Treaty Relief Considerations

If it is established that the account holder is NOT a US person, BCGE FATCA Letter contains a fairly unique aspect – discussion of the possibility of claiming a favorable tax status with respect to investments into US Securities. Most other banks usually discuss this important issue in a separate letter, but BCGE FATCA Letter actually incorporates this issue within its body. Form W-8BEN is required to proceed.

BCGE FATCA Letter: Notice and Reimbursement Requirements Imposed on Account Holder

Finally, a BCGE FATCA Letter usually contains another interesting topic – the shift of risk to the account holder through imposition of notice requirements. Since this is a tactic which is adopted increasingly by foreign banks, it is useful to explore this requirement with specificity.

BCGE FATCA Letter states that, by signing the Letter, the account holder “undertakes to inform the Bank of any changes in circumstances resulting in a change of tax status, as the one indicated below and transmit the necessary documents or forms within 30 days after the change in circumstances.” BCGE FATCA Letter sets forth three such changes: change of residence, change of nationality and amendment of the account holder’s tax status (such as receipt of green card, substantial presence in the United States, et cetera).

BCGE FATCA Letter goes on to state that if the declarations made by the account holder in the Letter become invalid for some reason (such as belated discovery of U.S. status), the account holder must transmit to BCGE a new declaration of status with a Form W-9 and FATCA waiver.

The key phrase, however, is with respect to what happens if the information submitted by the account holder within the BCGE FATCA Letter turns out to be incorrect or incomplete. In such a case, the account holder “undertakes to indemnify the Bank for all damages it may suffer” as a result of relying on the incorrect declarations made in the BCGE FATCA Letter. It is unclear whether failure to comply with the Notice requirement is equally subject to this reimbursement requirements, but it seems to be the case.

Thus, it appears that BCGE FATCA Letter decisively shifts all risk of an incorrect declaration (even if non-willful due to belated discovery) from BCGE to the account holder. This is why it is important for the account holder’s attorney to carefully review this document and negotiate the necessary changes.

Contact Sherayzen Law Office for Help With FATCA Compliance

If you received a FATCA letter regarding an undisclosed personal or business account, contact Sherayzen Law Office for professional help. Our team of international experts will thoroughly review your case, analyze your current FBAR and FATCA exposure, recommend the proper voluntary disclosure plan and help you implement it (including preparation of all necessary legal documents and tax forms).

Contact Us to Schedule Your Confidential Consultation Now!