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OVDP & Streamlined Disclosure May Terminate Soon | Foreign Accounts Lawyer

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On November 15, 2017, the IRS sent yet another signal that certain offshore voluntary disclosure options, particularly the OVDP & Streamlined Disclosure options, will be significantly modified or even terminated as the IRS proceeds with the LB&I Compliance Campaigns. This means that US taxpayers with undisclosed foreign accounts need to hurry up if they wish to proceed with their offshore voluntary disclosure utilizing the OVDP or the Streamlined Compliance Procedures.

OVDP & Streamlined Disclosure Termination: What Did the IRS Say?

The latest signal on the termination of the OVDP & Streamlined Disclosure options came from Mr. John Cardon (director of the withholding and international compliance area within IRS LB&I) and Mr. Daniel Price, an attorney with the IRS Office of Chief Counsel, Small Business/Self-Employed Division in Austin, Texas.

Both IRS officials emphasized that the current Offshore Voluntary Disclosure Program and the Streamlined Filing Procedures are likely to terminate soon. Mr. Price emphasized the fact that these voluntary disclosure options were always intended as special offers that were bound to end at some point.

The possibility that the IRS wishes to terminate the Streamlined Disclosure options in addition to OVDP is somewhat sudden and premature. The IRS already stated in the past that it is no longer satisfied with the OVDP, but it never complained about the Streamlined Compliance Procedures (which have been highly successful with over 18,000 disclosures just in the last year). It is also not clear whether the IRS wishes to completely terminate all OVDP and Streamlined Disclosure options or whether the Streamlined Filing Procedures will survive in one form or another.

Why the IRS Wishes to End OVDP & Streamlined Disclosure Options

There is more than one reason behind the current IRS drive to end or significantly modify the existing voluntary disclosure options. Let’s focus on the two most important of them.

First, the existing voluntary disclosure options are rapidly losing value as a source of new information regarding offshore noncompliance with US taxes. FATCA has created an enormous and continuously expanding network of automatic information exchange between the IRS and foreign financial institutions. Moreover, other automatic information exchanges mechanisms have successfully filled most of the gaps left by FATCA.

In other words, now that offshore tax compliance and automatic international information exchanges have become a worldwide norm, the IRS does not need voluntary disclosures to obtain new information about offshore tax noncompliance.

Second, there has been a systemic change to a different model of tax administration. As the IRS officials emphasized on November 15, 2017, the IRS is shifting away from processing broad voluntary disclosure programs while it is embracing the model of focused enforcement. This is precisely why the IRS created the LB&I Compliance Campaigns – to concentrate its limited resources on tax enforcement where it is most needed rather than engage in broad efforts with respect to voluntary correction of past errors. Hence, in an environment where enforcement dominates over voluntary disclosures, the utility of the IRS voluntary disclosure options becomes more and more limited.

OVDP & Streamlined Disclosure Termination: When Will the IRS Announce the Termination of the Current OVDP & Streamlined Disclosure Programs?

It appears that the IRS will make the appropriate announcement for the termination of the voluntary disclosures prior to the end of January of 2018.

Will the Termination of Current OVDP & Streamlined Disclosure Programs Happen Immediately or Sometime After the Announcement?

It appears that, even after its announcement of the termination of the OVDP & Streamlined Disclosure options, the IRS will provide some time for the taxpayers to finalize their on-going disclosures. Mr. Cordone even stated that the voluntary disclosure programs’ termination date could be as far away as one year from the date of the IRS announcement of such a termination.

Will the End of OVDP & Streamlined Disclosure Programs Also Mark the End of IRS Voluntary Disclosures Per Se?

While the recent IRS moves are of great concern, they should not be taken as the end of the IRS voluntary disclosures per se with no options available to remedy one’s past tax noncompliance with respect to offshore accounts. Rather, I expect that the IRS voluntary disclosures will simply shift to different options. It is beyond the scope of this article to discuss these potential voluntary disclosure options, but it is reasonable to assume we will find ourselves in situation somewhat reminiscent of the period of time between the end of 2011 OVDI and the beginning of 2012 OVDP.

If, however, a taxpayer wishes to take advantage of the existing voluntary disclosure options, the taxpayer should contact Sherayzen Law Office as soon as possible to make sure that the voluntary disclosure can be completed before the IRS closes OVDP & Streamlined Disclosure Program.

Contact Sherayzen Law Office for Professional Help with Your Offshore Voluntary Disclosure, including the OVDP & Streamlined Disclosure Options

If you have undisclosed foreign accounts or any other foreign assets, you should contact Sherayzen Law Office for professional help as soon as possible. Our international tax firm is highly experienced in successful completion of offshore voluntary disclosures for clients with foreign assets in close to 70 countries. We can help You!

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Secret Bank Accounts in Israel and Switzerland Result in a Guilty Plea

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The earlier IRS and DOJ (U.S. Department of Justice) investigations of secret bank accounts in Israel and Switzerland continue to produce new guilty pleas. On September 28, 2016, Mr. Markus Hager, a New York City resident, pleaded guilty to tax evasion for the tax years 2003-2005 and 2007-2010 with respect to his secret bank accounts in Israel and Switzerland.

Facts of the Case: Secret Bank Accounts in Israel and Switzerland

The facts of the Hager case are somewhat typical, but contain an exhilarating story of Mr. Hager’s attempts to conceal his ownership of the account – the fact that the IRS and the DOJ were able to uncover the entire history of these transfers of his funds under different names is impressive.

According to information presented in court, between 1987 through 2011, Mr. Hager utilized various secret bank accounts in Israel and Switzerland to hide his foreign funds and foreign income from the IRS. In order to do it, he opened a sham BVI (British Virgin Islands) entity which owned three accounts (two of them were numbered accounts) at UBS. It appears that, until 2008, Mr. Hager also owned some of his UBS accounts personally. By the end of 2004, the value of his undeclared UBS accounts exceeded $7.3 million.

With the IRS victory over UBS in 2008, Mr. Hager closed his UBS accounts and transferred all of his assets to a new opened account at Clariden Leu (which was already controlled at that time mostly by Credit Suisse; in 2012, the bank was integrated into the Credit Suisse corporate structure); the account was held in the name of his BVI entity.

Shortly thereafter, Mr. Hager closed the account at Clariden Leu and transferred the assets to a newly opened account held in the name of the BVI entity at a different Swiss bank. Mr. Hager caused that Swiss bank to falsely record Hager’s Belgian cousin as the owner of the assets on the account. Approximately six months later, he closed this account at the Swiss bank and transferred the assets to an account at a bank in Israel that Mr. Hager caused to be opened in the name of yet another Belgian cousin.

Between 2005 to 2011, Hager also controlled an undeclared bank account at Bank Leumi in Israel, which he falsely held under the name of a relative who was not a U.S. person and who resided outside the United States. In February of 2010, after obtaining an Israeli Identity Card, Hager opened an account in his own name at Bank Leumi in Israel but falsely reported that he lived in the United Kingdom and signed a document, under the penalty of perjury, declaring that he was not a U.S. citizen.

According to the information filed, Mr. Hager repatriated some of the funds from his secret bank accounts in Israel and Switzerland by having his attorney draft a sham loan agreement between himself and the BVI entity. The funds were wired from some of his undeclared bank accounts in Israel and Switzerland into the attorney’s escrow account.

During the relevant years, Mr. Hager filed false federal and New York State income tax returns on which he failed to report the income from his bank accounts in Israel and Switzerland and failed to pay tax on that income. It appears that Mr. Hager evaded approximately $652,580 in federal taxes for tax years 2003 through 2005 and 2007 through 2010. Hager also failed to file his FBAR even though an accounting firm had informed Hager of his obligation to do so and advised him of the civil and criminal penalties he could suffer for the failure to do so.

Sentencing for Failure to Disclose Assets and Income from Secret Bank Accounts in Israel and Switzerland

Sentencing has been set for January 4, 2017. Hager faces a statutory maximum sentence of five years in prison, as well as a term of supervised release and monetary penalties. According to the plea agreement, Hager agreed to pay restitution to the IRS. It is not clear if the FBAR penalty has been resolved by the plea.

Secret Bank Accounts in Israel and Switzerland: Lessons from the Hager Case

The Hager Case contains a full range of facts that lead to a criminal prosecution by the DOJ: the use of a sham foreign corporation in a tax shelter, the conscious and intentional effort to conceal the ownership of the funds by closing and opening bank accounts under different names, the failure to report the ownership of secret bank accounts in Israel and Switzerland even after Mr. Hager was advised by his accounting firms about the existence of the FBAR and its penalties, the failure to report the income from accounts, the filing of false tax returns and the repatriation of funds through a sham loan agreement and using his attorney’s escrow account. All of these items are a checklist of things that one should not do in order to avoid a DOJ criminal prosecution.

One interesting aspect of this case is the number of years for which Mr. Hager was charged with tax evasion. Apparently his especially egregious conduct had earned a total of seven years instead of the usual five years of counts of tax evasion. It is also interesting that the year 2006 was skipped in the plea; it is not clear from the plea why this was the case. My supposition is that the omission of the tax year 2006 was related to the statute of limitations concerns.

Contact Sherayzen Law Office for Professional Help with Disclosure of Your Bank accounts in Israel and Switzerland

If you have undisclosed bank account in Israel, Switzerland or any other country, please contact Sherayzen Law Office, Ltd. for help as soon as possible. Attorney Eugene Sherayzen and his highly-knowledgeable team of tax professionals have helped hundreds of U.S. taxpayers around the world to bring their tax affairs into compliance. You can also benefit from their knowledge, experience, creativity and devotion to their clients’ cases by scheduling a Confidential Consultation today!