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Undeclared Accounts in Singapore Are Under IRS Investigation | FBAR Attorney

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For several years now, Sherayzen Law Office has been warning U.S. taxpayers about the ever-increasing IRS interest in undeclared accounts in Singapore. On June 22, 2016, the IRS announced that UBS AG has complied with the IRS summons for bank records held in its Singapore office. This news come after repeated initiatives by the IRS to follow the money that was flowing out of what used to be secret Swiss bank accounts into the undeclared accounts in Singapore.

Facts Surrounding the IRS Summons Regarding UBS Undeclared Accounts in Singapore

The IRS served an administrative summons on UBS for records pertaining to accounts held by Ching-Ye “Henry” Hsiaw. According to the petition, the IRS needed the records in order to determine Hsiaw’s federal income tax liabilities for the years 2006 through 2011. Hsiaw transferred funds from a Switzerland-based account with UBS to the UBS Singapore branch in 2002, according to the declaration of a revenue agent filed at the same time as the petition. UBS refused to produce the records, and the United States filed its petition to enforce the summons.

“The Department of Justice and the IRS are committed to making sure that offshore tax evasion is detected and dealt with appropriately,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Tax Division. “One critical component of that effort is making sure that the IRS has all of the information it needs to audit taxpayers with offshore assets. In this case, we filed a petition to enforce a summons for offshore documents, but that’s only one of the tools we have available for gathering information. Taxpayers with offshore assets who underreported their income should come forward before we come looking for them.”

Lessons to be Learned from the Recent Summons of UBS Undeclared Accounts in Singapore

The recent IRS summons of UBS undeclared accounts in Singapore and the startling ease with which the IRS obtained the necessary information, confirm three earlier predictions that Sherayzen Law Office made after the announcing of the DOJ Program for Swiss Banks. First, the IRS takes a keen interest in the undeclared accounts in Singapore and it will not satisfy itself simply with destroying the Swiss bank secrecy laws with respect to U.S. taxpayers. The IRS is actively expanding its investigations beyond Switzerland and Singapore is definitely one of its top targets.

Second, the IRS will continue to utilize in its investigations the information that it obtained from the Swiss Bank Program, the IRS offshore voluntary disclosure programs and the IRS compliance procedures. The IRS has obtained mountains of information from these programs regarding not only the “favorite” countries for opening and maintaining undeclared accounts, but also the main patterns of U.S. tax noncompliance. In fact, the IRS now has evidence at its disposal to prosecute foreign banks far beyond Switzerland (a fact confirmed by recent criminal prosecutions of two Cayman Islands financial institutions). Hence, the undeclared accounts in Singapore and the foreign banks which are holding them are under increased IRS scrutiny today.

Finally, the implementation of FATCA combined with the two trends described above makes the discovery of undeclared accounts in Singapore (and most other countries) increasingly likely. Furthermore, it seems that the IRS also feels more and more confident to ask the courts for harsher penalties against noncomplying U.S. taxpayers.

What Should U.S. Taxpayers with Undeclared Accounts in Singapore Do?

U.S. taxpayers with undeclared accounts in Singapore now face a very unpleasant scenario where their discovery by the IRS can occur at any point with the imposition of draconian penalties and even potential prison time. Furthermore, it appears that such a discovery by the IRS is not only possible, but very likely.

Given the high probability of the discovery of their undeclared accounts in Singapore, the noncompliant U.S. taxpayers should retain as soon as possible an experienced international tax firm to explore their voluntary disclosure options. One of the best international tax law firms that provides these services is Sherayzen Law Office, Ltd.

Contact Sherayzen Law Office for Professional Help with Your Undeclared Accounts in Singapore

If you have undeclared accounts in Singapore (or any other country), you should immediately contact Sherayzen Law Office for professional help. Sherayzen Law Office is an international tax law firm that is highly experienced in offshore voluntary disclosures, including IRS Offshore Voluntary Disclosure Program and Streamlined Compliance Procedures (both Domestic and Foreign). You can rely on us with confidence that your case will be handled in an efficient, speedy and professional manner. We will strive for the best result for you!

Contact Us Today to Schedule Your Confidential Consultation!

FATCA Tax Lawyers Update: FATCA Financial Institution Definition

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One of the key concepts in FATCA compliance is a “financial institution”. The definition of a financial institution (“FATCA Financial Institution”) is contained in the FATCA Model IGAs. In this article, I will explore some of the general concepts central to defining a FATCA Financial Institution.

Four Types of FATCA Financial Institutions

The concept of FATCA Financial Institution is defined in the Model IGA Agreements. Both Model 1 and Model 2 IGAs agree on the definition of FATCA Financial Institution: “The term ‘Financial Institution’ means a Custodial Institution, a Depository Institution, an Investment Entity, or a Specified Insurance Company.” Let’s go over each concept in more detail.

Definition of a FATCA Financial Institution: Custodial Institution

FATCA Model Agreements provide a fairly straightforward definition of a Custodial Institution: “The term ‘Custodial Institution’ means any entity that holds, as a substantial portion of its business, financial assets for the account of others.” In this context “substantial” means that, during the specified period of time, twenty percent or more of the entity’s gross income is derived from holding of financial assets and related financial services.

The specified period of time is defined in Model 1 IGA as “the shorter of: (i) the three-year period that ends on the December 31 (or the final day of a non-calendar year accounting period) prior to the year in which the determination is being made; or (ii) the period during which the entity has been in existence.”

Definition of a FATCA Financial Institution: Depository Institution

According to FATCA Model IGAs, “The term ‘Depository Institution’ means any Entity that accepts deposits in the ordinary course of a banking or similar business.”

This definition is fairly self-explanatory, but it should be noted that interest-paying client money accounts operated by insurance companies are included within the definition of a depository institution.

Definition of a FATCA Financial Institution: Specified Insurance Company

According to FATCA Model IGAs, “the term ‘Specified Insurance Company’ means any entity that is an insurance company (or the holding company of an insurance company) that issues, or is obligated to make payments with respect to, a Financial Account.” This definition basically applies to all insurance companies that issue or must make payments with respect to an Insurance Cash-Surrender Value Contract or Annuity contract (which is similar to an FBAR).

For the purposes of this essay, I am not going to engage in the discussion of a Financial Account definition (this is an issue that I addressed in another article); suffice it to say that the definition of a Financial Account under FATCA closely follows the FBAR definition of the same concept.

Definition of a FATCA Financial Institution: Investment Entity

Finally, FATCA Model IGAs provide a detailed definition of what constitutes an “Investment Entity”. This concept includes any entity that conducts as a business one or more of the following activities or operations for or on behalf of a customer:
“(1) trading in money market instruments (cheques, bills, certificates of deposit, derivatives, etc.); foreign exchange; exchange, interest rate and index instruments; transferable securities; or commodity futures trading;
(2) individual and collective portfolio management; or
(3) otherwise investing, administering, or managing funds or money on behalf of other persons. This subparagraph 1(j) shall be interpreted in a manner consistent with similar language set forth in the definition of “financial institution” in the Financial Action Task Force Recommendations.”

Notice that this definition encompasses any entity that is managed by an Investment Entity. Further note that the definition of an Investment Entity should be interpreted in a manner consistent with the definition of a “financial institution” in the Financial Action Task Force Recommendations.

Implications if FATCA Financial Institution Definition on Undisclosed Foreign Accounts

The broad definition of a FATCA Financial Institution has a profound impact on US taxpayers with undisclosed foreign accounts. The chief reason for this conclusion is the fact that as soon as an entity is classified as a FATCA Financial Institution, the entity must be FATCA compliant (unless it falls within a FATCA exemption) and should report all of its accounts owned (directly or indirectly) by US taxpayers.

Contact Sherayzen Law Office for Help With Undisclosed Foreign Accounts

The consequences of the IRS discovery of an undisclosed foreign account can be disastrous for the US owner of this account, including extremely high monetary willful civil penalties as well as criminal penalties.

This is why, if you have an undisclosed foreign account, please contact Mr. Eugene Sherayzen, an experienced international tax attorney of Sherayzen Law Office as soon as possible. Our team is well versed in FATCA compliance, FBARs and other foreign reporting issues. We have helped hundreds of US taxpayers around the globe and we can help you.

So, Contact Us Now to Schedule Your Initial Consultation!

2015 UBS Probe Poses Threat to US Owners of Undisclosed UBS Accounts

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This week, UBS Group AG confirmed that it was under a new investigation over whether the Switzerland bank sold unregistered securities to US taxpayers in violation of US law. This article will discuss the new UBS probe and the threat it poses to US owners of undisclosed UBS accounts who never went through an offshore voluntary disclosure. This article is not intended to convey tax or legal advice.

Prior Investigations and 2009 Deferred-Prosecution Agreement

The 2015 bearer bond investigation of UBS is the latest in the series of DOJ investigations of UBS. Previously, in 2009, as a result a landmark DOJ victory that started the today’s rout of bank secrecy laws throughout the world, UBS paid a $780 million dollar fine and disclosed 250 previously undisclosed UBS accounts of US taxpayers to the DOJ (some of the owners of these undisclosed UBS accounts were later criminally prosecuted by the IRS). The bank promised that it would be compliant with US law under its deferred-prosecution agreement with the DOJ. The agreement expired in October, 2010. This was a critical agreement for the US owners of undisclosed UBS accounts, and we will come back to this subject below.

In addition to the deferred-prosecution agreement in 2009, UBS also settled an antitrust case in 2011 concerning the municipal-bond investments market, and resolved a 2012 DOJ investigation involving alleged rigging of the London interbank offered rate (Libor). UBS was granted an agreement to extend the term of its non-prosecution deal in the latter investigation until later this year. Additionally, in a probe not involving the DOJ, UBS paid US, UK and Swiss authorities nearly $800 million in November to settle allegations that they did not have satisfactory controls to prevent traders from attempting to rig Forex dealing.

The DOJ also has reportedly also opened a new investigation concerning certain currency-linked structured products sold by UBS. International tax attorneys who worked with undisclosed UBS accounts for their US clients in the past know how common it was for UBS to sell these products to their US clients.

The 2015 UBS Investigation

As noted above, the new investigation is being conducted by the U.S. Attorney’s Office for the Eastern District of New York and from the U.S. Securities and Exchange Commission. UBS stated in its fourth-quarter report, “In January 2015, we received inquiries from the U.S. Attorney’s Office for the Eastern District of New York and from the U.S. Securities and Exchange Commission, which are investigating potential sales to U.S. persons of bearer bonds and other unregistered securities.” UBS added that it was cooperating with the authorities in the probes. According to various new sources, the bank is also being probed as to whether the alleged sales occurred while the bank was under DOJ supervision from its earlier 2009 tax evasion case.

Bearer bonds can be redeemed by anybody physically holding them. Because of the ease with which these instruments can be transferred, they are a potentially useful tool for enabling individuals to hide assets and evade taxes. While bearer bonds were not deposited on undisclosed UBS accounts, some US owners of undisclosed UBS accounts were owners of these unregulated instruments.

Undisclosed UBS Accounts and the 2015 UBS Investigation

According to various sources, if UBS is found to have breached the agreement by selling the unregistered bearer bonds to US persons in violation of US law during the time period in which the agreement was still in effect, it is possible that the DOJ will prosecute the bank under the original conspiracy charge, in addition to filing new charges and penalties.

The significance of this scenario lies in the fact that there may still be US taxpayers with undisclosed UBS accounts (whether owned directly, indirectly or constructively). Many of these taxpayers were trying to hide in the relative safety of the UBS 2009 Deferred-Prosecution Agreement, hoping that the worst was over for UBS.

Moreover, because UBS was classified as a Category 1 bank, it could not participate in the DOJ Program for Swiss Banks. This gave a wrong type of encouragement to some US owners of undisclosed UBS accounts not to come forward and go through a voluntary disclosure program.

In reality, however, due to the fact that UBS was the first bank that succumbed to the pressure from the US DOJ and disclosed previously undisclosed UBS accounts owned by US persons, the DOJ’s deal with UBS was relatively mild compared to the later penalties on other large Swiss Banks (such as Credit Suisse). Hence, there is a great incentive for the DOJ to re-open the investigation into UBS to force the bank to pay an amount equivalent to its other Swiss peers.

This means that, if the 2015 investigation is successful and the DOJ can get around the 2009 Deferred-Prosecution Agreement, the UBS may, in a new deal with DOJ, conduct a wholesale disclosure of the US owners of undisclosed UBS accounts – not only the current owners, but also the US owners who had undisclosed UBS accounts in the years 2008-2010.

What Should the US Owners of Undisclosed UBS Accounts Do?

Thus, the 2015 DOJ investigation of UBS could have disastrous consequences for US persons who owned undisclosed UBS accounts between the years 2008 and the present time. The premature disclosure of undisclosed UBS accounts may foreclose very important voluntary disclosure options for the US owners of these undisclosed UBS accounts. The subsequent investigations by the IRS may result in draconian civil penalties and even criminal prosecutions.

This is why US persons who owned undisclosed UBS accounts should contact an experienced international tax attorney to discuss their voluntary disclosure options as soon as possible.

Contact Sherayzen Law Office for Help with Your Undisclosed Foreign Accounts

If you are have not disclosed your foreign accounts (including undisclosed UBS accounts) to the IRS, you are advised to immediately contact the experienced international tax law firm of Sherayzen Law Office, Ltd. For many years now, we have been helping US taxpayers like you to bring their US tax affairs into full compliance, and we can help you.

Contact Us to Schedule Your Initial Consultation! Remember, contacting Sherayzen Law Office is Confidential!

Who Must File IRS Form 1042

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Form 1042 (“Annual Withholding Tax Return for U.S. Source Income of Foreign Persons”) serves a number of important reporting purposes. In general, it is used to report the tax withheld under chapter 3 of the Internal Revenue Code (“IRC”) on certain income of foreign persons (such as nonresident aliens, foreign partnerships, foreign corporations, foreign estates, and foreign trusts), as well as to report the tax withheld under chapter 4 of the IRC on payments subject to tax withholding. It also utilized to report tax withheld pursuant to IRC Section 5000C (“Imposition of tax on certain foreign procurement”), and reportable payments from Form 1042-S under chapters 3 or 4.

In this article, we will cover who is responsible for filing Form 1042. US individuals involved with cross-border businesses or living overseas should be aware of this form as they may be subject to the form’s filing requirements for a variety of common reasons, without even knowing it. For instance, US-source alimony paid to a nonresident alien former spouse may be reportable by a withholding agent on Form 1042 (in addition to 1042-S), even if the entire amount is exempt under a tax treaty.

This article provides general information and is not intended to convey tax or legal advice. Please contact Mr. Eugene Sherayzen, an experienced tax attorney at Sherayzen Law Office, Ltd. if you have any questions about filing this form, or any other US-international tax questions.

Who is Responsible for Filing Form 1042?

As noted by the IRS, unless an exception applies, “every withholding agent or intermediary who receives, controls, has custody of, disposes of, or pays a withholdable payment, including any fixed or determinable annual or periodical income, must file an annual return for the preceding calendar year” on Form 1042. The IRS defines “withholding agent” to mean any person who is required to withhold tax. This definition is expansive and can include, in general, any individual, trust, estate, partnership, corporation, nominee, government agency, association, or tax-exempt foundation (both domestic and foreign) that is required to withhold tax. Withholding agents are personally liable for any tax required to be withheld, as well as interest and applicable penalties.

An “intermediary” means, “a person who acts as a custodian, broker, nominee, or otherwise as an agent for another person, regardless of whether that other person is the beneficial owner of the amount paid, a flow-through entity, or another intermediary.”

When Must Form 1042 Be Filed?

Form 1042 must be filed in a number of different circumstances. As stated by the IRS, an individual or entity must file the form if, “you are required to file or otherwise file Form(s) 1042-S for purposes of either chapter 3 or 4 (whether or not any tax was withheld or was required to be withheld to the extent reporting is required)…; You file Form(s) 1042-S to report to a recipient tax withheld by your withholding agent; You pay gross investment income to foreign private foundations that are subject to tax under section 4948(a); You pay any foreign person specified federal procurement payments that are subject to withholding under section 5000C; You are a qualified intermediary (QI), withholding foreign partnership (WP), withholding foreign trust (WT), participating foreign financial institution (FFI), or reporting Model 1 FFI making a claim for a collective refund under your respective agreement with the IRS.” Note, that the FFI classification may also require other extensive reporting under FATCA.

2014 Form 1042: Due Date and Place of Filing

The 2014 Form 1042 must be filed by March 16, 2015, to the IRS’ Ogden (UT) Service Center, and an extension of time to file may be granted by submitting Form 7004, (“Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns”).

Contact Sherayzen Law Office for Help With International Tax Compliance

US-International tax reporting and planning can involve many complex areas, and you are advised to seek the advice of attorneys practicing in this area. If you have any questions, please contact Sherayzen Law Office, Ltd. for all of your tax and legal needs.

Kentucky Resident Charged for Maintaining Secret Swiss Bank Accounts

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U.S. Attorney Preet Bharara for the Southern District of New York and Acting Special Agent in Charge Shantelle P. Kitchen of the Internal Revenue Service-Criminal Investigation (IRS-CI) New York Field Office announced on November 18, 2014, the unsealing of an indictment against Peter Canale, a U.S. citizen and resident of Kentucky, for conspiring to defraud the IRS and evade taxes by establishing and maintaining secret Swiss bank accounts. Canale was arrested on November 18, 2014, at his residence in Jamestown, Kentucky, and is expected to be presented later today in the US District Court for the Eastern District of Kentucky. Canale is scheduled to be arraigned before US District Judge Katherine B. Forrest in Manhattan federal court on December 3, 2014, at 3:00 p.m.

Facts of the Case With Respect to Secret Swiss Bank Accounts According to Indictment

According to the allegations in the indictment unsealed on November 18, 2014, in Manhattan federal court, Canale conspired with others – including Michael Canale, his brother, Beda Singenberger, a Swiss citizen who ran a financial advisory firm, and Hans Thomann, a Swiss citizen who served as a client adviser at UBS and certain Swiss asset management firms – to establish and maintain secret Swiss bank accounts and to hide those accounts from the IRS. Canale used a sham entity to conceal from the IRS his ownership of the secret Swiss Bank Accounts and deliberately failed to report the accounts and the income generated in the accounts to the IRS.

One of the most surprising facts in this case is the source of money – it was foreign inheritance. In approximately 2000, a relative of Canale’s who held an undeclared bank account in Switzerland died and left a substantial portion of the assets in the undeclared account to Canale and Michael Canale. Canale and his brother met with Thomann and Singenberger and determined they would continue to maintain the assets in the secret Swiss Bank accounts for the benefit of Canale and his brother.

Thereafter, in approximately 2005, Canale, with Singenberger’s assistance, opened secret Swiss Bank Accounts at Wegelin bank (no longer in existence). The account was opened in the name of a sham foundation formed under the laws of Lichtenstein to conceal Canale’s ownership.

Equally surprising is that a criminal case was brought against an account that was under $1,000,000. As of December 31, 2009, the account held assets valued at approximately $789,000.

For each of the calendar years from 2007 through 2010, Canale willfully failed to report on his tax returns his interest in the secret Swiss Bank Accounts and the income generated in those secret Swiss Bank accounts. For each of these years, Canale also failed to file a Report of Foreign Bank and Financial Accounts (FBAR) with the IRS, as the law required him to do.

Canale, 61, is charged with one count of conspiracy to defraud the United States, evade taxes, and file a false and fraudulent income tax return, which carries a statutory maximum sentence of five years in prison. The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Secret Swiss Bank Accounts Charges Related to a Client List Obtained from Indicted Swiss Banker

The Canale case is another example of an indictment stemming directly from a misplaced letter mailed by a Swiss financial adviser Singenberger (the same advisor who helped Canale open his secret Swiss Bank Accounts) that ended up in the hands of the US tax authorities. The IRS has been picking off the clients on the list one by one since 2013 (including Jacques Wajsfelner and Michael Reiss).

Lessons to be Learned from Canale Case

As I mentioned in a recent article regarding the Cohen case, there has been a growing trend where the IRS is pursuing criminal prosecutions in cases that involve smaller balances on secret Swiss Bank Accounts as long as the IRS is comfortable with its ability to establish willfulness with respect to FBAR non-reporting.

Canale case is just one more example of this trend. The balances were not large at all – the highest balance was far under $1 million. However, the Canale case also included an aggravating factor of allegedly using a sham foundation to conceal his identity; these cases usually carry a higher than usual probability of an IRS criminal prosecution.

What was unusual about the Canale case is how little weight was given to the source of the funds on the secret Swiss Bank Accounts – inheritance. It appears that, in all likelihood, other circumstances were so negative as to simply overwhelm the positive nature of this factor.

Contact Sherayzen Law Office for Professional Help Regarding Your Undisclosed Foreign Accounts

If you had undisclosed foreign accounts at any point since the year 2006, you should consider your voluntary disclosure options as soon as possible. While the DOJ Program for Swiss Banks makes the maintenance of secret Swiss Bank Accounts extremely dangerous at this point, the implementation of FATCA since July 1, 2014, carries a far more potent chance that you undisclosed foreign accounts will be discovered even if they are outside of Switzerland.

If you need help, contact Mr. Sherayzen, a voluntary disclosure professional and international tax attorney at Sherayzen Law Office. Our team will thoroughly analyze your case, evaluate your current voluntary disclosure options, and proceed to implement your voluntary disclosure plan (including preparation of all legal documents and tax forms).

Contact Us to Schedule Your Confidential Consultation Now.