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Credinvest Bank Signs Non-Prosecution Agreement

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On June 3, 2015, the US Department of Justice (“DOJ”) announced that Banca Credinvest SA (Credinvest Bank), together with Rothschild Bank, signed a Non-Prosecution Agreement that finalized Credinvest Bank’s participation in the DOJ Program for Swiss Banks.

Credinvest Bank History

Located in Lugano, Switzerland, Credinvest Bank started operations as a fully licensed bank in 2005. Credinvest Bank offered a variety of services that it knew could assist, and that did assist, U.S. clients in concealing assets and income from the IRS, including hold mail service and numbered accounts. Credinvest Bank did not set up any formalized internal reporting regarding U.S. clients and did not adopt any procedures to ascertain or monitor the compliance of its U.S. clients with their U.S. tax obligations. In late 2008, an external asset manager referred 11 accounts to Credinvest Bank, all of which were for U.S. clients who had left UBS. The bank delegated to that external asset manager the primary management of those accounts and failed to ascertain the compliance of those clients with their U.S. tax obligations. The bank thus aided and assisted those clients in concealing their accounts from U.S. authorities. Since August 1, 2008, Credinvest Bank had 31 U.S.-related accounts with just over $24 million in assets.

Credinvest Bank Penalty and Disclosures

As other banks in the DOJ Program for Swiss Banks, Credinvest Bank mitigated some of its penalties, but it will still have to pay a penalty of $3.022 million.

In addition, as part of its participation in the DOJ Program for Swiss Banks, Credinvest Bank made a complete disclosure of its cross-border activities, provided detailed information on an account-by-account basis for accounts in which US taxpayers have a direct or indirect interest, and provided detailed information regarding transferred funds to other banks. It is not known at this point if the IRS made any treaty requests to Credinvest Bank.

The most immediate impact of Rothschild Bank Non-Prosecution Agreement will be felt by US accountholders who wish to enter OVDP after June 3, 2015 – their penalty rate will go up from 27.5 percent of the highest value of their foreign accounts and other assets included in the OVDP penalty base to a whopping 50 percent penalty rate.

What Credinvest Bank Non-Prosecution Agreement Means to US Taxpayers

Credinvest Bank Non-Prosecution Agreement is likely to have three important consequences for US taxpayers with undisclosed accounts. First, US taxpayers with undisclosed accounts at Credinvest Bank will now face the higher 50% penalty rate in the OVDP program, instead of the regular 27.5% penalty rate.

Second, US taxpayers who attempted to conceal their Credinvest Bank accounts by closing them and transferring them to other banks will now face an increased risk of IRS detection due to the fact that the IRS now has the transfer information from Credinvest Bank. It is also possible that they may have received this information as part of another Swiss bank’s disclosure under the DOJ Program for Swiss Banks.

Finally, Credinvest Bank participation in the DOJ Program for Swiss Banks is one more reminder that, in this FATCA world, US taxpayers with undisclosed foreign accounts are playing a Russian roulette with their future by persevering in their non-compliance. The IRS may receive information regarding their accounts from various sources – DOJ Program is just one of them.

US Taxpayers With Undisclosed Foreign Accounts Should Explore Voluntary Disclosure

At this point, if you are a US taxpayer with undisclosed foreign accounts, please consult the experienced international tax team of Sherayzen Law Office. Our professional legal team has helped hundreds of US taxpayers around the world and we can help you!

Contact US to Schedule Your Confidential Consultation Now!

Treasury 2014 FBAR Currency Conversion Rates of December 31, 2014

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According to the June 2014 FBAR currency conversion rates instructions published by FinCEN, in order to determine the maximum value of a foreign bank account, the Treasury’s Financial Management Service (still called so even though Financial Management Service was consolidated into the Bureau of the Fiscal Service within the Treasury Department) rates must be used. In particular, the 2014 FBAR currency conversion rates instructions state:

In the case of non-United States currency, convert the maximum account value for each account into United States dollars. Convert foreign currency by using the Treasury’s Financial Management Service rate (this rate may be found at www.fms.treas.gov) from the last day of the calendar year. If no Treasury Financial Management Service rate is available, use another verifiable exchange rate and provide the source of that rate. In valuing currency of a country that uses multiple exchange rates, use the rate that would apply if the currency in the account were converted into United States dollars on the last day of the calendar year.

The 2014 FBAR Currency Conversion rates are highly important for any international tax attorney who deals with FBARs.  For your convenience, Sherayzen Law Office provides a table of the official Treasury FBAR currency conversion rates below (keep in mind, you still need to refer to the official website for any updates):

Country – Currency Foreign Currency to $1.00
AFGHANISTAN – AFGHANI 57.9000
ALBANIA – LEK 115.1000
ALGERIA – DINAR 87.8100
ANGOLA – KWANZA 104.0000
ANTIGUA – BARBUDA – E. CARIBBEAN DOLLAR 2.7000
ARGENTINA-PESO 8.3730
ARMENIA – DRAM 470.0000
AUSTRALIA – DOLLAR 1.2190
AUSTRIA – EURO 0.8220
AZERBAIJAN – NEW MANAT 0.8000
BAHAMAS – DOLLAR 1.0000
BAHRAIN – DINAR 0.3770
BANGLADESH – TAKA 79.0000
BARBADOS – DOLLAR 2.0200
BELARUS – RUBLE 13779.0000
BELGIUM-EURO 0.8220
BELIZE – DOLLAR 2.0000
BENIN – CFA FRANC 538.7000
BERMUDA – DOLLAR 1.0000
BOLIVIA – BOLIVIANO 6.8600
BOSNIA-HERCEGOVINA MARKA 1.6080
BOTSWANA – PULA 9.4970
BRAZIL – REAL 2.6570
BRUNEI – DOLLAR 1.2540
BULGARIA – LEV 1.6090
BURKINA FASO – CFA FRANC 538.7000
BURMA – KYAT 1028.0000
BURUNDI – FRANC 1550.0000
CAMBODIA (KHMER) – RIEL 4103.0000
CAMEROON – CFA FRANC 538.8200
CANADA – DOLLAR 1.1580
CAPE VERDE – ESCUDO 87.8710
CAYMAN ISLANDS – DOLLAR 0.8200
CENTRAL AFRICAN REPUBLIC – CFA FRANC 538.8200
CHAD – CFA FRANC 538.8200
CHILE – PESO 607.1600
CHINA – RENMINBI 6.2050
COLOMBIA – PESO 2372.6000
COMOROS – FRANC 361.3500
CONGO – CFA FRANC 538.8200
CONGO, DEM. REP – CONGOLESE FRANC 920.0000
COSTA RICA – COLON 533.2500
COTE D’IVOIRE – CFA FRANC 538.7000
CROATIA – KUNA 6.1500
CUBA-PESO 1.0000
CYPRUS-EURO 0.8220
CZECH – KORUNA 22.3260
DENMARK – KRONE 6.1240
DJIBOUTI – FRANC 177.0000
DOMINICAN REPUBLIC – PESO 44.1300
ECAUDOR-DOLARES 1.0000
EGYPT – POUND 7.1500
EL SALVADOR-DOLARES 1.0000
EQUATORIAL GUINEA – CFA FRANC 538.8200
ERITREA – NAKFA 15.0000
ESTONIA-EURO 0.8220
ETHIOPIA – BIRR 20.0900
EURO ZONE – EURO 0.82200
FIJI – DOLLAR 1.9580
FINLAND-EURO 0.8220
FRANCE-EURO 0.8220
GABON – CFA FRANC 538.8200
GAMBIA – DALASI 45.0000
GEORGIA-LARI 1.8700
GERMANY FRG-EURO 0.8220
GHANA – CEDI 3.2100
GREECE-EURO 0.8220
GRENADA – EAST CARIBBEAN DOLLAR 2.7000
GUATEMALA – QUENTZAL 7.5970
GUINEA – FRANC 7136.0000
GUINEA BISSAU – CFA FRANC 538.7000
GUYANA – DOLLAR 202.0000
HAITI – GOURDE 46.7500
HONDURAS – LEMPIRA 21.2700
HONG KONG – DOLLAR 7.7560
HUNGARY – FORINT 259.4400
ICELAND – KRONA 126.7500
INDIA – RUPEE 63.2000
INDONESIA – RUPIAH 12350.0000
IRAN – RIAL 8229.0000
IRAQ – DINAR 1166.0000
IRELAND-EURO 0.8220
ISRAEL-SHEKEL 3.8810
ITALY-EURO 0.8220
JAMAICA – DOLLAR 113.9000
JAPAN – YEN 119.4500
JERUSALEM-SHEKEL 3.8810
JORDAN – DINAR 0.7080
KAZAKHSTAN – TENGE 182.4000
KENYA – SHILLING 90.6500
KOREA – WON 1086.8700
KUWAIT – DINAR 0.2930
KYRGYZSTAN – SOM 58.7000
LAOS – KIP 8078.0000
LATVIA – LATS 0.8220
LEBANON – POUND 1500.0000
LESOTHO – SOUTH AFRICAN RAND 11.5660
LIBERIA – U.S. DOLLAR 82.0000
LIBYA-DINAR 1.1950
LITHUANIA – LITAS 2.8390
LUXEMBOURG-EURO 0.8220
MACAO – MOP 8.0000
MACEDONIA FYROM – DENAR 49.2000
MADAGASCAR-ARIA 2596.7300
MALAWI – KWACHA 505.0000
MALAYSIA – RINGGIT 3.4950
MALI – CFA FRANC 538.7000
MALTA-EURO 0.8220
MARSHALLS ISLANDS – DOLLAR 1.0000
MARTINIQUE-EURO 0.82200
MAURITANIA – OUGUIYA 305.0000
MAURITIUS – RUPEE 31.7000
MEXICO – NEW PESO 14.7020
MICRONESIA – DOLLAR 1.0000
MOLDOVA – LEU 15.5520
MONGOLIA – TUGRIK 1885.6000
MONTENEGRO-EURO 0.8220
MOROCCO – DIRHAM 9.0240
MOZAMBIQUE – METICAL 33.0500
NAMIBIA-DOLLAR 11.5660
NEPAL – RUPEE 101.4000
NETHERLANDS-EURO 0.8220
NETHERLANDS ANTILLES – GUILDER 1.7800
NEW ZEALAND – DOLLAR 1.2750
NICARAGUA – CORDOBA 26.6000
NIGER – CFA FRANC 538.7000
NIGERIA – NAIRA 182.9000
NORWAY – KRONE 7.3900
OMAN – RIAL 0.3850
PAKISTAN – RUPEE 100.9000
PALAU-DOLLAR 1.0000
PANAMA – BALBOA 1.0000
PAPUA NEW GUINEA – KINA 2.5440
PARAGUAY – GUARANI 4629.3000
PERU – NUEVO SOL 2.9000
PHILIPPINES – PESO 44.77500
POLAND – ZLOTY 3.5130
PORTUGAL-EURO 0.8220
QATAR – RIYAL 3.6420
ROMANIA – LEU 3.6850
RUSSIA – RUBLE 58.6760
RWANDA – FRANC 689.1900
SAO TOME & PRINCIPE – DOBRAS 20087.7110
SAUDI ARABIA – RIYAL 3.7500
SENEGAL – CFA FRANC 538.7000
SERBIA-DINAR 99.4600
SEYCHELLES – RUPEE 12.9800
SIERRA LEONE – LEONE 4990.0000
SINGAPORE – DOLLAR 1.3210
SLOVAK REPUBLIC – EURO 0.8220
SLOVENIA – EURO 0.8220
SOLOMON ISLANDS – DOLLAR 7.3100
SOUTH AFRICA – RAND 11.5660
SOUTH SUDANESE – POUND 3.0000
SPAIN – EURO 0.8220
SRI LANKA – RUPEE 131.1500
ST LUCIA – EC DOLLAR 2.7000
SUDAN – SUDANESE POUND 6.4000
SURINAME – GUILDER 3.3500
SWAZILAND – LILANGENI 11.5660
SWEDEN – KRONA 7.7130
SWITZERLAND – FRANC 0.9890
SYRIA – POUND 179.2000
TAIWAN – DOLLAR 31.6400
TAJIKISTAN – SOMONI 5.3000
TANZANIA – SHILLING 1730.0000
THAILAND – BAHT 32.9200
TIMOR – LESTE DILI 1.0000
TOGO – CFA FRANC 538.7000
TONGA – PA’ANGA 1.8700
TRINIDAD & TOBAGO – DOLLAR 6.3560
TUNISIA – DINAR 1.8590
TURKEY – LIRA 2.3270
TURKMENISTAN – MANAT 2.8400
UGANDA – SHILLING 2770.0000
UKRAINE – HRYVNIA 15.7680
UNITED ARAB EMIRATES – DIRHAM 3.6700
UNITED KINGDOM – POUND STERLING 0.6420
URUGUAY – PESO 23.9600
UZBEKISTAN – SOM 2461.0000
VANUATU – VATU 99.9300
VENEZUELA – BOLIVAR 6.3000
VIETNAM – DONG 21400.0000
WESTERN SAMOA – TALA 2.3530
YEMEN – RIAL 214.5000
ZAMBIA – KWACHA (NEW) 6.3750
ZAMBIA – KWACHA (OLD) 5455.0000
ZIMBABWE – DOLLAR 1.0000

1. Lesotho’s loti is pegged to South African Rand 1:1 basis
2. Macao is also spelled Macau: currency is Macanese pataka
3. Macedonia: due to the conflict over name with Greece, the official name if FYROM – former Yugoslav Republic of Macedonia.
4. Latvia’s Lats converted to the Euro on January 1, 2014. This means that the Euro 2014 FBAR Currency Conversion rate may also need to used for the determination of the highest balance of accounts in Latvia. Contact Sherayzen Law Office for more details.

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.

FBAR Penalties: Outrageous, Draconian but Real

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If you have undisclosed foreign financial accounts that should have been reported on the Report of Foreign Bank and Financial Accounts (“FBAR”), you may be facing FBAR penalties. By far, the FBAR contains the most severe civil penalties and significant criminal penalties among all international tax forms. It is important to understand that these penalties, despite their apparently extreme nature, are real and you may be facing them.

FBAR Criminal Penalties

The two most common cases for criminal prosecution are willful failure to file an FBAR and willful filing a false FBAR, especially when combined with potential tax evasion. The criminal FBAR penalties in these cases may be up to the limit set in 31 U.S.C. § 5322. This means that, potentially, a person who willfully fails to file an FBAR or files a false FBAR may be subject to a prison term of up to 10 years, criminal penalties of up to $500,000 or both.

FBAR Civil Penalties

In addition to criminal penalties, FBAR penalties include a rich arsenal of civil penalties. The exact penalties that a person may be facing will depend on that person’s particular circumstances; these circumstances must be evaluated by an experienced international tax attorney.

In general, where the taxpayer willfully failed to file the FBAR, or destroyed or otherwise failed to maintain proper records of account, and the IRS learned about it (e.g. during an investigation), the taxpayer is likely to face the worst-case scenario with draconian penalties. The IRS may impose civil FBAR penalties of up to the greater of $100,000, or 50 percent of the value of the account at the time of the violation (in addition to the already discussed criminal FBAR penalties of up to $500,000, or 10 years of imprisonment, or both).

In certain circumstances, it is possible to mitigate the penalties, but this issue should be evaluated by an experienced international tax attorney. If mitigation is an option for you, then it may dramatically alter your calculation of willful penalties.

A less severe round of civil FBAR penalties may be imposed if a US person negligently and non-willfully failed to file the FBAR, and the IRS learned about it during an investigation. Unlike the first scenario, there are unlikely to be criminal penalties for the non-willful failure to file the FBAR. Rather, the taxpayer is likely to face non-willful FBAR penalties of up to $10,000 per violation (i.e. each unreported account in each year). However, where there is a pattern of negligence, additional civil FBAR penalties of no more than $50,000 may be imposed per each violation. Again, in limited circumstances, the taxpayer maybe eligible for the mitigation the penalties, but this issue should be evaluated by an experienced international tax attorney. While the impact of non-willful mitigation is not likely to be as dramatic as that of the willful penalties, such mitigation may still have a significant impact on the total number of penalties.

Reasonable Cause Exception and OVDP FAQ #17 (OVDP Is Now Closed)

There are two major exceptions to FBAR penalties. First, if you are able to establish reasonable cause, you may be able to escape all FBAR penalties. Again, an experienced international tax attorney should be consulted on whether you have a valid reasonable cause exception and the chances that this strategy will succeed. Second, in general, pursuant to OVDP FAQ #17 (obsolete), you may be able to avoid FBAR penalties if you have no additional U.S. tax liability as a result of  your voluntary disclosure and you already reported all of the income associated with the undisclosed foreign financial account on your tax returns. I cannot stress enough the importance of consulting an international tax attorney to  determine whether your case fits within the requirements of the OVDP Q&A #17.

IRS Offshore Voluntary Disclosure Program Closed

It is important to note that the FBAR penalty structure outlined above is not followed by the official IRS Offshore Voluntary Disclosure Program (OVDP) now closed. Rather, OVDP replaces this penalty structure with its own three-tiered penalty system with the emphasis on the aggregate balance of all accounts, rather than the number of accounts. Moreover, there is no reasonable cause exception to the OVDP (now closed) structure of penalties. However, OVDP FAQ #17 can still be applied to  the foreign financial accounts of the participating taxpayer whenever the situation warrants its application.

Given the enormous differences that exist between the IRS OVDP and the traditional statutory FBAR penalties, it is crucially important to consult an experienced international tax attorney in choosing your way to reduce your FBAR penalties.

Contact Sherayzen Law Office for Help With Your FBAR Penalties

If you have undisclosed foreign financial accounts and you are facing the FBAR penalties, contact Sherayzen Law Office as soon as possible. Our international tax firm will thoroughly analyze your case, estimate your FBAR penalties (both, under the traditional and OVDP (obsolete) penalty structures), determine the options and strategies that may be used in your Offshore Voluntary Disclosure, and implement your case plan (including the creation of any necessary legal documents and tax forms).

We are the tax experts you are looking for to handle your case!

FATCA Online Registration System – FATCA Lawyer Minneapolis

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On August 22, 2013, the Internal Revenue Service announced the opening of a new online registration system for financial institutions that need to register with the IRS under the Foreign Account Tax Compliance Act (FATCA).

Financial institutions that must register with the IRS to meet their FATCA obligations can now begin the process of registering by creating an account and providing required information. Financial institutions will also be able to provide required information for their branches of operation and other members of their expanded affiliate groups in which the financial institution is the lead organization.

The registration system, designed to enable secure account management, is a web-based application with around-the-clock availability.

Within a secure environment, the new registration system enables financial institutions to:

•establish online accounts;
•customize home pages to manage accounts;
•designate points of contact to handle registrations;
•oversee member and/or branch information; and
•receive automatic notifications of status changes.

Financial institutions are encouraged to become familiar with the system, create their online accounts and begin submitting their information. Starting in January 2014, financial institutions will be expected to finalize their registration information by logging into their accounts, making any necessary changes and submitting the information as final.

As registrations are finalized and approved in 2014, registering financial institutions will receive a notice of registration acceptance and will be issued a global intermediary identification number.

The IRS will electronically post the first IRS Foreign Financial Institution (FFI) List in June of 2014, and will update the list monthly. To ensure inclusion in the June 2014 IRS FFI List, financial institutions will need to finalize their registrations by April 25, 2014.