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Receiving FATCA Letter from Your Foreign Bank

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Since July 1, 2014, the most feared US legislation regarding international tax enforcement – Foreign Account Tax Compliance Act (“FATCA”) – is being implemented by most banks around the world. As part of this compliance, foreign banks are sending out so-called FATCA letters to their customers seeking to verify certain types of information. In this article, I would like to introduce this FATCA letter and what the FATCA letter may mean to a US taxpayer with undisclosed foreign bank and financial accounts.

What is FATCA?

FATCA was signed into law in 2010 and codified in Sections 1471 through 1474 of the Internal Revenue Code. The law was enacted in order to reduce offshore tax evasion by US persons with undisclosed offshore accounts. There are two parts to FATCA – US taxpayer reporting of foreign assets and income on Form 8938 and reporting by a foreign financial institution (FFI) of foreign bank and financial account to the IRS.  Here, I will concentrate on the latter, because it is an FFI that sends out the FATCA letter.

FATCA generally requires a foreign payee (i.e. FFI) to identify certain US accountholders and report their accounts to the IRS. Such reporting is done either through an FFI Agreement directly to the IRS or through a set of local laws that implement FATCA.

If an FFI refuses to do so or otherwise does not satisfy these requirements (and is not otherwise exempt), US-source payments made to the FFI may be subject to withholding under FATCA at a rate of 30%. Note that FATCA information reporting and withholding requirements generally do not apply to FFIs that are treated as “deemed-compliant” because they present a relatively low risk of being used for tax evasion or are otherwise exempt from FATCA withholding.

FATCA Implementation and FATCA Letter

As of July 1, 2014, the FATCA went into full effect, which means that FFIs now have to report the required FATCA information to the IRS. However, it appears that the IRS is not likely to fully enforce the penalties until the end of 2014 just to give FFIs enough time to comply.

Nevertheless, many FFIs are making a full effort to comply with FATCA. As part of this effort, FFIs around the world have been sending out “FATCA letters”. A FATCA letter is basically a letter from your bank or other financial institution which introduces FATCA to their customers and asks them to provide answers to a various set of questions aiming to find out information specific to FATCA compliance. Often, instead of asking all of these questions directly a FATCA letter would simply list out a series of forms that contain these questions (for example, W9, W8BEN, et cetera).

If the customer refuses to answer the questions or provide the necessary forms, the financial institution would often close the account and report it as a “recalcitrant account” to the IRS.

Impact of FATCA Letter on US Taxpayers with Undisclosed Accounts

A FATCA letter may have a very profound impact on a US taxpayer with foreign accounts which were not properly disclosed to the IRS (usually on the FBAR and/or Form 8938). Let’s concentrate on two most important aspects of receiving a FATCA letter. First, a FATCA letter puts the taxpayer on notice that he is required to report his foreign financial accounts and foreign income to the IRS. This may have a big impact on whether the taxpayer can later certify his non-willfulness for the purposes of the Streamlined Filing Compliance Procedures.

Second, a FATCA letter starts the clock for the taxpayer to beat the bank’s disclosure of his account to the IRS.

In essence, receiving a FATCA letter forces the taxpayer to quickly choose the path of his voluntary disclosure under significant time pressure.

Contact Sherayzen Law Office if You Received a FATCA Letter

If you received a FATCA letter from your bank or any other financial institution, contact Sherayzen Law Office immediately to assess your situation and determine the path of your voluntary disclosure. Our highly experienced team of international tax professionals will thoroughly analyze your case, prepare all of the required documentation (legal documents and tax forms), conduct the voluntary disclosure and defend your interests before the IRS.

Remember, time is of the essence in these matters. So, Call Us Now to Schedule Your Confidential Consultation!

Surgeon Indicted for Secret Bank Accounts in Panama and Costa Rica

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Previously, I already discussed the high exposure of the US-owned undisclosed bank accounts in Panama and Costa Rica. Last week, the IRS gave a perfect example (thought with an unusual set of facts) of such exposure of bank accounts in Panama and Costa Rica. On May 23, 2014, the Justice Department and Internal Revenue Service (IRS) announced that a federal grand jury in Anchorage, Alaska, returned a superseding indictment charging Michael D. Brandner, an Anchorage physician specializing in plastic surgery, on three counts of tax evasion.

Facts of the Case

The unusual aspect of this case is that one of the major motivations for opening the accounts in Panama and Costa Rica was the divorce that Dr. Bradner was going through.

According to court documents, Dr. Brandner engaged in a scheme to hide and conceal millions of dollars of assets from the Alaska courts and from his wife of 28 years who was divorcing him. Shortly after the divorce was filed, Dr. Brandner left Alaska and drove to Central America after converting assets into five cashier’s checks worth over $3,000,000.

Then, in 2008, after the Alaska court ordered Dr. Bradner to give up the $1.26 million self-directed IRA, he moved all of that money to his Panama account. Later, he moved another $200,000 to Panama.

In 2011, Dr. Bradner’s tax advisor in Panama (who was an informant cooperating with the IRS) advised Dr. Bradner about the tax treaty signed by Panama in 2010 on the disclosure of foreign accounts. He was able to convince Dr. Bradner to create a foreign corporation which opened a bank account in the United States. This account was supposed to hold the funds from Central America to avoid their disclosure to the IRS, but the Department of Homeland Security seized the funds when Dr. Bradner attempted to wire-transfer them to his corporation’s U.S. account.

According to the superseding indictment, Dr. Brandner attempted to evade his taxes, including making false and misleading statement to IRS special agents and filing false tax returns for 2008, 2009 and 2010. In the three false returns, Dr. Brandner failed to report the existence of financial accounts in Panama and Costa Rica over which he had signature authority, and also failed to report foreign interest income of more than $9,000 for 2008, more than $150,000 for 2009, and more than $150,000 for 2010. The indictment also alleges that Dr. Brandner attempted to evade more than $600,000 in federal income taxes over the three years.

The last interesting fact of this case is that (in a secretly-taped conversation) the Panamanian advisor specifically stated to Dr. Bradner and advised him about the FBAR form – a statement which was allegedly acknowledged by the doctor.

IRS Focus Expands to Undisclosed Bank Accounts in Panama and Costa Rica

There are some very interesting facts about this case. Some facts, like the conceded knowledge of the FBAR and the use of foreign corporation to conceal unreported assets and income, will undoubtedly greatly complicate Dr. Bradner’s legal position. They also correspond to the general pattern of facts for cases which are chosen by the IRS for criminal prosecution.

The most interesting side of this case, however, is that this case testifies to the ever expanding scope of IRS investigation of undisclosed foreign accounts, with the particular focus on the bank accounts in Panama and Costa Rica. About two years ago, I predicted that there will be more criminal prosecutions coming out of Central America once the IRS gradually expands its focus beyond Switzerland and Israel.

While there are other prominent candidates, the bank accounts in Panama and Costa Rica offer special rewards to the IRS: there is a large concentration of retired Americans (and Israeli-Americans) in Central America, the Panamanian tax cooperation and exchange agreement signed in 2010 (i.e. almost two years after the UBS case, allowing the IRS to pursue more cases down the road without any major statute of limitations hassles), and there has certainly been a certain amount of abuse committed by tax professionals in Central America in cooperation with Swiss tax advisors (shockingly, a lot of tax attorneys in Central America are still oblivious to important U.S. tax requirements, including FBARs).

This is why the investigations of the undisclosed bank accounts in Panama and Costa Rica will only grow in prominence in the coming years as IRS will seek to deepen U.S. tax compliance in this region.

Contact Sherayzen Law Office for Professional Help with Your Voluntary Disclosure of Bank Accounts in Panama and Costa Rica

If you have undisclosed bank accounts in Panama and Costa Rica, you may face severe FBAR penalties. This is why you need to contact the experienced international tax law firm of Sherayzen Law Office as soon as possible. We can guide you through your voluntary disclosure options, create and help you implement the voluntary disclosure plan, and defend your interests against the IRS.

Contact Us to Schedule Your Confidential Consultation!

Businessman Jailed for Using Nevis Bank Account to Conceal Income

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On May 7, 2014, the IRS and the DOJ announced the Robert C. Sathre was sentenced to serve thirty-six months in federal prison for tax evasion; Mr. Sathre was also ordered to pay $3,113,882 in restitution to the IRS and to serve three years of supervised release. Sathre pleaded guilty on February 26, 2014, to willfully evading the payment of his 1995 and 1996 tax liability.

Facts of the Case

According to court documents and proceedings, Mr. Sathre sold a Minnesota business and received installment payments in 1995 and 1996 of more than $3 million. Mr. Sathre concealed his income by filing a 1995 tax return in which he reported only $64,928 in total income. Mr. Sathre then purchased land and set up another business, a gas station and convenience store in Sheridan, Wyoming, known as the Rock Stop.

According to the DOJ, Mr. Sathre concealed assets by opening a foreign bank account in the Caribbean island of Nevis and by using purported trusts. During the ten-month period during 2005-2006, Mr. Sathre sent over $500,000 to the account in Nevis to keep the funds out of reach from the IRS. When Mr. Sathre sold the Rock Stop in 2007, he wired over $1,250,000 from the sale proceeds to the trust account of a Wyoming law firm. He later directed the law firm to wire $900,000 from the trust account to his account at the Bank of Nevis. Mr. Sathre also provided a false declaration and false promissory note to the Bank of Nevis to conceal the source of this transfer and obtained a debit card linked to the foreign account to access funds locally. In addition, Mr. Sathre provided the Bank of Sheridan with an IRS form on which he falsely claimed that he was neither a citizen nor a resident of the United States.

Analysis of Relevant Facts

The first interesting detail here is the period of time involved – 1995 and 1996. This is something to keep in mind for U.S. taxpayers with undisclosed offshore accounts – the IRS can look beyond the three- and six-year statutes of limitations in certain cases involving fraud and other criminal conduct.

Second, this seems to be one of the cases that would not have come out had the defendant not broken the U.S. tax laws again. It appears that the under-reporting on the 1995 and 1996 returns was not detected originally. However, when Mr. Sathre appears to have engaged in tax evasion with the second sale of Rock Stop in 2007 and commenced to transfer money to Nevis, he must have triggered an IRS investigation.

In fact, this case is an excellent illustration of the difference in the international tax enforcement between the pre-2001 period (i.e. prior to the IRS enforcement of FBAR and the DOJ campaign to enforce U.S. tax laws internationally) and the post-2001 period, especially after the UBS case and FATCA global enforcement.

Finally, as in many other criminal cases involving foreign accounts, the engagement in complex planning (i.e. using foreign trusts) to conceal the transaction must have greatly contributed to the decision by the IRS and the DOJ to pursue criminal penalties.

A Warning to U.S. Taxpayers with Undisclosed Nevis Bank Accounts

The Sathre case should be considered a warning to the U.S. taxpayers with undisclosed Nevis bank accounts. The IRS was able to retrace all of the transactions between the United States and Nevis. With FATCA global enforcement gaining steam, it is highly important for these taxpayers to realize that their undisclosed Nevis bank accounts may be discovered by the IRS and it may happen soon.

The consequences of such an investigation by the IRS may be grave as the present Sathre case demonstrates: large monetary penalties and incarceration.

This is why it is highly important for U.S. taxpayers with undisclosed Nevis Bank accounts to consider their voluntary disclosure options as soon as possible. My strong suggestion is to retain an international tax lawyer for this process.

Contact Sherayzen Law Office for Help With the Voluntary Disclosure of Your Nevis Bank Accounts

If you have an undisclosed Nevis bank account, contact Sherayzen Law Office for professional help. Our international tax law firm is highly experienced in the matters of offshore voluntary disclosures. We have helped hundreds of taxpayers around the world and we can help you!

Contact Us to Schedule Your Confidential Consultation Now!