International Tax Compliance - IRS Tax Audit Strategy
Private placement life insurance is a pre-emptive IRS audit tax strategy that transforms taxable ordinary income and capital gains into tax-free income (with no income tax reporting required under current U.S. Law). Please reference IRS Private Letter Ruling 200244001 (May 2, 2002).
For U.S. Persons with investment income, private placement life insurance provides for compliant, tax-free compounded earnings.
From Wall St Journal 10/18/06 article, Insuring Against Hedge-Fund Taxes:
It’s called “private placement” life insurance. These special insurance contracts allow policyholders to invest in a wide range of products, including hedge funds. The main attraction: Because the investments are held within an insurance wrapper, gains inside the policy are shielded from income taxes — as is the payout upon death. What’s more, policyholders may be able to access their money during their lifetimes by withdrawing or borrowing funds, tax-free, from the policy, depending on how it’s set up…
Private-placement policies are typically restricted to individuals paying at least $1 million in total premiums. They are offered by both domestic and offshore insurers, including American International Group Inc., Phoenix Cos.’s AGL Life Assurance Co., Sun Life Financial Inc., Massachusetts Mutual Life Insurance Co. and New York Life Insurance Co., among others.A private placement insurance policy is variable in nature, which allows the insurance company to invest the majority of the premium(s) in a legally separate, segregated account to be managed by either an investment manager of the client’s choosing or the insurance company itself. There are no guarantees when it comes to the investment performance (as it varies, so does the death benefit but with a fixed minimum).
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U. S. to seek client names from UBS in tax case
From Wall St Journal 5/15/08 article
“U.S. prosecutors are expected to confront Swiss banking giant UBS AG with a broad subpoena for the names of wealthy American clients who may have used its services to avoid income taxes, according to lawyers and others involved in the case.
The subpoena would follow an indictment, unsealed Tuesday in Florida federal court, of former UBS private banker Bradley Birkenfeld and his alleged accomplice, Mario Staggl, a Liechtenstein businessman skilled in setting up intricate trusts in Europe and offshore tax havens. Mr. Birkenfeld pleaded not guilty Tuesday in Fort Lauderdale. Mr. Staggl, who is at large and believed to be in Liechtenstein, didn’t return phone calls or emails for comment…
The investigation focuses on whether UBS, Mr. Birkenfeld and Mr. Staggl helped clients hide assets in Swiss and Liechtenstein accounts, moves that allegedly allowed the clients to avoid reporting taxable income to the Internal Revenue Service from 2001 at least through 2006.”
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Probe May Lay Open UBS
From Wall St Journal article 5/8/08:
US prosecutors are investigating whether the private bank, which provides services to wealthy individuals, was involved in tax-evasion schemes that may have been carried out through Liechtenstein, a European principality that was beyond the reach of US tax officials. The US investigation is being aided by a former UBS insider who has met with US prosecutors, according to two people with knowledge of the situation. US securities regulators also are conducting an inquiry.
The US probe into UBS’ private bank, the world’s largest as ranked by assets under management and one that prides itself on conservatism and confidentiality, threatens to implicate UBS clients. The former UBS employee, who also is under investigation for potential wrongdoing, has provided US officials with names of American clients of UBS, said the people familiar with the probe.
For complete article, click here
Swiss banks refuse blame for foreign clients’ tax evasion
From 5/5/08 International Herald Tribune:
Swiss banks cannot be expected to police foreign clients’ tax affairs, one of the country’s top banking officials said Monday, rejecting German demands for greater cooperation to catch tax evaders.
The president of the Swiss Bankers Association laid the blame for tax evasion squarely at the feet of governments that demand too much of their citizens’ income.
“Countries which worry about tax evasion of their citizens should have a good think about the way they tax their people,” Pierre Mirabaud told journalists in Geneva.
The European Union, in particular Germany, has been pressuring Switzerland to crack down on EU citizens who hide money in Swiss banks in order to avoid paying higher taxes at home.
Switzerland, which is not a member of the 27-nation bloc, fiercely protects the privacy of banking customers, including foreigners who have deposited more than 1 trillion Swiss francs (US$950 billion; €640 billion) in its vaults.
“It’s necessary to clearly show Germany and the European Union where their sphere of influence ends and where our sovereignty begins,” Mirabaud said, adding that his members don’t regard themselves as responsible for their clients’ actions.
“We are not a tax authority and we are not a police authority,” he said.
Click here for complete article.
IRC §7201. Attempt to Evade or Defeat Tax
From IRS Website:
9.1.3.3.2 (08-11-2003)
IRC §7201. Attempt to Evade or Defeat Tax
By operation of the criminal fine provisions under 18 USC §3571, the maximum permissible fines for the violations of IRC §7201, is at least $250,000 for individuals and $500,000 for corporations. Alternatively, if any person derives pecuniary gain from the offense, or if the offense results in pecuniary loss to a person other than the defendant, the defendant may be fined not more than the greater of twice the gross gain or twice the gross loss.
Internal Revenue Service Convictions for 2007
Trac Reports has published their Internal Revenue Service Convictions for 2007
The latest available data from the Justice Department show that during FY 2007 the government reported 1,081 new convictions which had been referred by the Internal Revenue Service. According to the case-by-case information analyzed by the Transactional Records Access Clearinghouse (TRAC), this number is down 1% over the past fiscal year when the number of convictions totaled 1,092.
“Fraud and False statements” (Title 26 U.S.C Section 7206) was the most frequently recorded lead charge. Title 26 U.S.C Section 7206 was also ranked 1st a year ago and 1st five years ago. It was ranked 2nd ten years ago and 3rd twenty years ago.
Ranked 2nd in frequency was the lead charge “Attempt to evade or defeat tax” under Title 26 U.S.C Section 7201. Title 26 U.S.C Section 7201 was ranked again 2nd both a year ago and five years ago. However, it was ranked 1st ten year ago and 1st twenty years ago.
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Snipes gets maximum sentence in tax case
OCALA, Fla., April 24 (UPI) — Despite pleas from a cavalcade of Hollywood stars, Wesley Snipes received the maximum penalty for tax fraud in a Florida court Thursday, officials said.
Snipes was sentenced by a U.S. District judge in Ocala, Fla., to three years in prison and faces fines of up to $5 million for federal tax evasion, the U.S. Department of Justice reported.
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Plan would use electronic bank records to help collect on tax debts
This is a growing trend. Click here for complete article.
Minnesota tax collectors want to enlist banks — and their electronic records — in their search for the assets of tax cheats.
The state Revenue Department is pushing a plan to collect an extra $10 million a year in outstanding taxes by making banks, credit unions, life insurance companies and money market mutual funds scan their records regularly and pass on data on tax debtors so the state can get its money.
Feds to judge: Give Snipes maximum penalty
WASHINGTON (CNN) — Federal prosecutors Tuesday urged a Florida judge to sentence actor Wesley Snipes to three years in prison and fine him $5 million to demonstrate to taxpayers that refusal to pay income taxes carries severe penalties.
Snipes is scheduled to be sentenced April 24 by U.S. District Judge William Hodges in Ocala, Florida, on three counts of failure to file federal income tax returns.
One week after vowing to crack down on “tax defiers,” the Justice Department filed court papers seeking the maximum penalty for the three misdemeanor counts on which Snipes was convicted.
“This case presents the court with a singular opportunity to deter tax fraud nationwide,” the government said in its sentencing recommendation…
The 35-page argument for the stiffest possible penalty ends with a dramatic flair.
“In the defendant Wesley Snipes, the court is presented with a wealthy, famous and inveterate tax scofflaw. If ever a tax offender was deserving of being held accountable to the maximum extent for his criminal wrongdoing, Snipes is that defendant,” it says.
The IRS is also seeking repayment of all taxes and interest through civil court proceedings.
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In Europe, widening probe targets tax haven
Nearly two decades after taking the helm of Deutsche Post, Klaus Zumwinkel had transformed Germany’s national postal service into a global mail and logistics giant with annual revenues of €66 billion ($102 billion) – more than double those of FedEx. A director on the boards of Morgan Stanley, Deutsche Telekom, and Lufthansa, he was one of Germany’s most prominent executives.
Then, on Feb. 14, he surrendered to police amid suspicion that he evaded €1 million in taxes. The next day, he resigned, becoming the first to fall in a massive probe that has broadened to nine other countries.
But even as Germany conducts its biggest tax-evasion probe ever, experts warn that technological advances and opaque banking practices are making it easier for individuals to stash trillions of dollars a year in havens such as Liechtenstein, Monaco, and Luxembourg.
“In this new, more globalized, integrated world, where you can go on to the Internet and open a secret offshore bank account in eight minutes, it’s getting easier for a wider spectrum of the population to hide assets offshore and more difficult for tax authorities to follow the financial trail,” says Grace Perez-Navarro, deputy director at the tax unit of the Organization for Economic Cooperation and Development (OECD) in Paris.
The OECD and the European Union (EU) have led the way in tackling tax evasion, and countries such as Ireland, Italy, and the Netherlands have all reported minor successes or launched new initiatives in recent months. The German probe, based on a list of 1,400 alleged tax cheats provided on CD by a paid informant, has yielded more than 300 suspects and $47 million in recovered taxes.
German tax inspectors are expected to launch a new round of raids shortly, and Spain, Britain, Australia, and the US are conducting their own investigations – some based on the same informant.
Liechtenstein, which has identified the informant as Heinrich Kieber, a former employee for a subsidiary of the royal family’s bank, LGT, has contested the legality of the information. Germany’s domestic intelligence services paid a reported $7.5 million to obtain and verify the lists, $6.2 million of which was pocketed by the informant.
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