Swiss court confirms transfer of UBS data to the US
The Swiss Federal Administrative Court has announced that an agreement with the US, allowing Swiss bank UBS to disclose account information of clients suspected by the US Government of tax evasion, is binding.
A Jurist report states that the agreement, approved last month by the Swiss Parliament, allows UBS to turn over information of 4 450 US clients to the US Internal Revenue Service (IRS) and may prevent the US Department of Justice (DOJ) from resuming a lawsuit against UBS in which it had sought the names of 52 000 UBS clients.
The court also announced that they have rejected a challenge to the law by a UBS client who had objected to the data transfer. In announcing its ruling, the court noted the importance of the US-Swiss agreement, saying ‘the economic interests of Switzerland as well as the interests in fulfilling obligations that have been entered into in international law are of major significance and outweigh the individual interests of the complainant in this case’.
The report says that the ruling could potentially affect 100 other appeals from UBS clients, which are currently pending.
Ex-UBS client in NJ pleads guilty in IRS tax case
By Jonathan Stempel, Reuters.com (7/1/30)
A former UBS AG client in New Jersey who once played for the Soviet Union’s national soccer team pleaded guilty on Thursday to concealing $2.6 million he had held in an offshore account from the U.S. Internal Revenue Service.
Click link above for complete story.
HIRE Foreign Account Tax Compliance: 40% Penalty
The HIRE Act gives the IRS assessment and collection remedies unavailable with respect to the FBAR penalty.
A 40% accuracy-related penalty is imposed for underpayment of tax attributable to transactions involving undisclosed foreign financial assets. Undisclosed foreign financial assets include foreign financial assets that are subject to information reporting but the required information was not provided by the Taxpayer.
The 40% accuracy-related penalty is imposed for underpayment of tax that is attributable to an undisclosed foreign financial asset understatement (IRC §6662(b)(7) and (j) as added by the HIRE Act 2010). An undisclosed foreign financial asset understatement for any tax year is the portion of the understatement for the year that is attributable to any transaction involving an undisclosed foreign financial asset.
In contrast to the FBAR penalty which is limited to collection through the U.S. Financial Management System (which collects non-tax debts for the government), the HIRE Act penalties give the IRS the ability to assess and collect these new penalties through its administrative powers (including tax levy and tax lien).
The new penalties under the HIRE Act are for the understatement of tax and impose a lesser burden of proof and threshold for imposition of the penalty than the willful FBAR penalty.
Summary of HIRE and Foreign Account Tax Compliance Act
On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment (“HIRE”) Act (P.L. 111-147) (The “Act”) which included the Foreign Account Tax Compliance Act containing new foreign account tax compliance rules.
Under the Act, new reporting and disclosure requirements for foreign assets will be phased in between 2010 – 2013:
1. Foreign Institutional Reporting: Foreign Institutions have new reporting and withholding obligations for accounts held by U.S. Persons (generally effective after 12/31/12, commencing 1/1/13).
2. Foreign Financial Assets ($50,000): Individuals with an interest in a “Foreign Financial Asset” have new disclosure requirements. If foreign financial assets are valued in excess of $50,000, the U.S.
Taxpayer must attach certain information to their income tax returns for tax years beginning after March 18, 2010. (U.S. Taxpayers are not required to disclose interests that are held in a custodial account with a U.S. financial institution).
The penalty is substantial ($10,000, plus additional amounts for continued failures, up to a maximum of $50,000 for each applicable tax period). The penalty may be waived if the individual can establish that the failure was due to reasonable cause and not willful neglect.
3. 40% Penalty: A 40% accuracy-related penalty is imposed for underpayment of tax that is attributable to an undisclosed foreign financial asset understatement. Applicable assets are those subject to mandatory information reporting when the disclosure requirements were not met. The penalties are effective for tax years beginning after March 18, 2010.
4. 6 Year Statute of Limitations: Statute of limitations re: omission of income in connection with foreign assets: The statute of limitations for assessments of tax is extended to six (6) years if there is an omission of gross income in excess of $5,000 attributable to the foreign financial asset. The six year statute of limitations is effective for tax returns filed after March 18, 2010, as well as for any other tax return for which the assessment period has not yet expired as of March 18, 2010.
5. Passive Foreign Investment Companies: The Act imposes an information disclosure requirement on U.S. Persons who are PFIC shareholders.
A PFIC is any foreign corporation if:
a. 75% or more of the gross income of the corporation for the taxable year is passive income; or
b. The average percentage of assets held by such corporation during a taxable year which produce passive income or which are held for the production of passive income are at least 50%.
6. Foreign Trusts with U.S. Beneficiaries: The Act clarifies if a foreign trust is treated as having a U.S. Beneficiary, an amount accumulated is treated as accumulated for the U.S. Person’s benefit even if that Person’s trust interest is contingent. The Act clarifies that the discretion to identify beneficiaries may cause the trust to be treated as having a U.S. Beneficiary. This provision is effective after March 18, 2010.
7. Rebuttable Presumption/Foreign Trust – U.S. Beneficiary: The Act creates a rebuttable presumption that a foreign trust has a U.S. Beneficiary if a U.S. Person directly or indirectly transfers property to a foreign trust (unless the transferor provides satisfactory information to the contrary to the IRS). This provision is effective for property transfers after March 18, 2010.
8. Uncompensated Use of the Foreign Trust Property: The Act provides that the uncompensated use of the foreign trust property by a U.S. Grantor, a U.S. Beneficiary (or a U.S. Person, related to either of them), is treated as a distribution by the trust.
The use of the trust property is treated as a distribution to the extent of the fair market value of the property’s use to the U.S. Grantor/U.S. Beneficiary, unless the fair market value of that use is paid to the trust.
The loan of cash or marketable securities by a foreign trust, or the use of any other property of the trust, to or by any U.S. Person is also treated as paid or accumulated for the benefit of the U.S. Person. This provision applies to loans made and uses of property after March 18, 2010.
9. Reporting Requirements, U.S. Owners of Foreign Trusts: This provision requires any U.S. Person treated as the owner of any portion of a foreign trust to submit IRS-required information and insure that the trust files a return on its activities and provides such information to its owners and distributees.
This new requirement imposed on U.S. Persons treated as owners is in addition to the current requirement that such U.S. Persons are responsible for insuring that the foreign trust complies with its own reporting obligations. This provision is effective for taxable years beginning after March 18, 2010.
10. Minimum Penalty re: Failure to Report Certain Foreign Trusts: This provision increases the minimum penalty for failure to provide timely and complete disclosure on foreign trusts to the greater of $10,000 or 35% of the amount that should have been reported.
In the case of failure to properly disclose by the U.S. Owner of a foreign trust of the year-end value, the minimum penalty would be the greater of $10,000 or 5% of the amount that should have been reported.
This provision is effective for notices and returns required to be filed after December 31, 2009.
UBS and The IRS - What’s Next (Summary)
In February 2009, UBS AG, Switzerland’s largest bank, entered into a deferred prosecution agreement with the U.S.:
1. Admitting guilt on charges of conspiring to defraud the U.S. by impeding IRS tax collection.
2. Paid $780 million in fines.
3. Agreed to provide the identities and account information of U.S. Taxpayers with “cross-border” UBS accounts.
To date, UBS has supplied the IRS with the names of 323 Americans who wired money from their U.S. accounts to Switzerland. By August 2010, UBS has agreed to disclose an additional 4,450 U.S. Taxpayers with cross-border UBS accounts.
The Swiss Government has issued an edict mandating that UBS cease and desist “turning over” the identities of U.S. Taxpayers to the IRS. UBS has proposed a course of conduct which insulates itself from conflicts with the Swiss legislature and the U.S. authorities.
UBS has proposed to send to each U.S. Taxpayer a USB stick (i.e., a flash drive) with their “cross-border” UBS bank account records. Once the USB stick is sent to the U.S. Taxpayer, the IRS may commence a civil tax audit, subpoena the USB sticks and obtain all tax information sought from UBS.
U.S. Taxpayers with unreported foreign bank accounts (and income) are subject to IRS civil tax audits with civil penalties (monetary penalty, only) and criminal tax prosecutions (monetary penalty and jail).
The IRS, under a civil tax audit:
1. May summon evidence which support culpability for a crime (e.g., tax evasion) and civil penalties (e.g., 75% fraud penalty).
2. May trigger investigation into money laundering (i.e., when U.S. Taxpayers attempt to repatriate into the U.S., funds from undisclosed foreign bank accounts, they may be culpable for money laundering).
3. Use evidence obtained under a civil tax audit to support a subsequent criminal prosecution (including culpability for 3rd party co-conspirators for obstructing tax collection and conspiracy).
FBAR - Possible Criminal Charges
According to IRS FAQ (#14) of May 6, 2009, Taxpayers who do not report income from foreign bank/financial accounts or file FBAR’s face up to 19 years in jail:
What are some of the criminal charges I might face if I don’t come in under voluntary disclosure and the IRS finds me?
Possible criminal charges related to tax returns include tax evasion (26 U.S.C. § 7201), filing a false return (26 U.S.C. § 7206(1)) and failure to file an income tax return (26 U.S.C. § 7203). The failure to file an FBAR and the filing of a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C.§ 5322.
A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.
Tax Informants Are On The Loose
By Janet Novack and William P. Barrett, Forbes.com
For 24 years Vincent A. Spondello toiled away as an accountant for a group of related companies known as Monex, a large Newport Beach, Calif. precious metals dealer. A trusted employee, he prepared tax returns and was given such tasks as overseeing the destruction of old corporate documents. It turns out that some records that were supposedly destroyed he took home instead.
In May Spondello sent 25 boxes of original Monex papers to the Internal Revenue Service–documents that could buttress the IRS’ claim that Monex’s owners fraudulently moved around assets to avoid a $378 million tax bill. He made his document drop after hiring lawyers and filing a claim for a whistleblower reward that could total $57 million or more. Monex denies it owes anything, has fired Spondello and is demanding back its documents.
“He’s a good guy,” says Spondello lawyer Robert D. Coviello. “But he is a rat.”
Pay attention. There are Vincent Spondellos taking notes, taking names and taking documents across America, and beyond.
For years the IRS grudgingly paid stingy rewards to squealers who brought it mostly small cases; during 2004 and 2005, 428 informants received a total of $12 million–only 7% of the paltry $168 million all their leads brought in. But in 2006, hoping to entice insiders to rat out big-dollar cheats and corporate tax shelters and games, Congress directed the IRS to pay tipsters at least 15% and as much as 30% of taxes, penalties and interest collected in cases where $2 million or more is at stake.
The gambit seems to be working very well. The IRS continues to get thousands of small case tips a year. But in fiscal 2009, ended Oct. 30, the IRS Whistleblower Office also logged big case leads on 1,900 taxpayers, up from 1,246 in fiscal 2008, the first full year the new law was in effect. Dozens of these tips involve purported tax losses of $100 million or more. Sure, those are just allegations. But informants “often provide extensive documentation to support their claims,” the Whistleblower Office noted in a report. The Treasury Inspector General for Tax Administration, in a separate report, added up all the 2008 tips and found that $65 billion in unreported income was alleged.
The slow-moving IRS has yet to pay any bounties under the new scheme, which the Inspector General report said still had “deficiencies” in its execution. But the government itself is already reaping big rewards.
In June 2007 Bradley C. Birkenfeld–motivated in large part, he now acknowledges, by the new reward law–came to U.S. officials with documents in hand and laid out how his former employer, UBS AG, helped wealthy Americans hide money offshore. So far the investigation he triggered has produced a $780 million payment to the U.S. government from UBS, Switzerland’s largest bank; an unprecedented agreement by the Swiss to finger 4,450 U.S. taxpayers with secret UBS accounts; and criminal investigations of more than 150 American UBS clients. That, in turn, helped pressure 14,700 taxpayers to make “voluntary” disclosures of previously undisclosed offshore kitties during a special program earlier this year, yielding extra billions in tax for the Treasury. “The entire game has changed on international tax evasion,” crows IRS Commissioner Douglas Shulman.
Click link above for complete article.
FBARs and Offshore Hedge Funds
The California Tax Lawyer (Summer 2009 Edition) published my article: FBARs and Offshore Hedge Funds. Please see copy below.
FBARs and Offshore Hedge Funds
After the landmark agreement between the U.S. and Swiss government over secret UBS Swiss bank accounts held by U.S. citizens, the IRS is now focusing on hedge funds in the Cayman Islands. Recently, IRS officials advised that certain U.S. investors in off-shore hedge funds must file a FBAR.
On June 12, 2009, an IRS official stated that the term “financial interest” (which requires a FBAR filing) includes hedge funds that “function as mutual funds.” It appears the IRS and Justice Department will identify U.S. taxpayers who evade U.S. taxes by investing with off-shore hedge funds. The IRS and Justice Department are pressing foreign financial institutions to provide them with information about Americans with “foreign, secret bank accounts.”
Senate Finance Committee Chairman Max Baucus (D., Mont.) has introduced legislation that would require an FBAR to be filed with a tax return. It would also require U.S. financial institutions to report to the IRS transfers of money into any foreign financial account. This would make it possible for the IRS to have information about the creation of a foreign account at the beginning.
Jerseyan admits tax fraud charges in probe tied to UBS
By Ted Sherman, Star-Ledger Staff, NJ.com (9/26/09)
A wealthy New Jersey international trader pleaded guilty yesterday to federal tax fraud charges in the wake of a growing criminal investigation tied to UBS AG, the world’s largest private bank.
Juergen Homann, 66, of Saddle River, admitted he failed to file tax forms for six years showing more than $6 million held in secret accounts overseas.
Homann, a naturalized U.S. citizen who also holds a German passport, said he received advice from an unidentified UBS Swiss banker and others on setting up a Liechtenstein foundation used to keep his accounts hidden from the Internal Revenue Service.
He later created a Hong Kong corporation used to orchestrate a sham $5 million loan from his own accounts to a subsidiary of a company he controlled.
Among those who helped him, Homann said, was Swiss lawyer Matthias Rickenbach, who was indicted in August on charges of helping others evade U.S. taxes.
In the proceeding before Judge Stanley Chesler in federal court in Newark, Homann, hands clasped behind his back as he answered questions without hesitation, pleaded guilty to a one-count information charging him with failure to file mandatory reports detailing foreign bank and financial accounts.
Assistant U.S. Attorney Marc-Philp Ferzan told the court Homann is already cooperating with federal prosecutors in its ongoing inquiry of UBS. Homann’s attorney, Cynthia Eddy, declined comment.
Homann was caught up in the federal probe that has targeted hundreds of Americans after admissions by UBS that it helped clients hide nearly $20 billion in assets. Federal authorities say Swiss bankers routinely traveled to the United States to market Swiss bank secrecy to clients interested in evading U.S. taxes.
Click link above for complete article.
Sixth UBS Client Pleads Guilty to Tax Charges
By WebCPA.com Staff
A retired Boeing sales manager is the latest UBS client to plead guilty to filing a false tax return after the Swiss bank agreed to disclose the identities of some of its U.S. clients.
Robert Cittadini of Bellevue, Wash., accepted responsibility for hiding up to $1.86 million in accounts at the Swiss bank and failing to report the income he earned from the accounts on his 2001 to 2003 tax returns. Cittadini also did not file a Report of Foreign Bank and Financial Accounts, or F-BAR form, for each of those years.
Cittadini initially opened an account with UBS in the early 1990s in his own name, but around 2001, Swiss banker Hansruedi Schumaker, who was indicted in August 2009 on conspiracy charges, helped him transfer assets from his UBS account to an account named for Mataropa Finance Limited, a nominee Hong Kong corporation that helped him hide the assets. Swiss lawyer Matthias Rickenbach, also indicted in August, was a director of the Hong Kong entity.
Sentencing in Cittadini’s case is scheduled for Jan. 8, 2010. He faces up to three years in prison and a $250,000 fine. He also has agreed to pay a civil F-BAR penalty based on 50 percent of the highest account balance from 2001 to 2007.
“This is a time of reckoning for those who thought they had found a safe haven for cheating,” said U.S. Attorney Jenny A. Durkan in a statement. “People who avoid paying their fair share hurt all of us who follow the law and conscientiously pay our taxes.”
In February 2009, UBS entered into a deferred prosecution agreement in which the bank admitted to helping U.S. taxpayers hide accounts from the IRS. As part of the agreement, UBS provided the U.S. government with the identities and account information of some U.S. customers of the bank’s cross-border business. Cittadini’s case is the sixth guilty plea arising from that information.
In June 2009, Steven Michael Rubinstein, a Boca Raton, Fla., accountant, pleaded guilty to filing a false tax return. In April 2009, another UBS client, Robert Moran, a Ft. Lauderdale, Fla., yacht broker, pleaded guilty to filing a false tax return. In July 2009, Jeffrey Chernick, of Stanfordville, N.Y., pleaded guilty to filing a false tax return. In August 2009, John McCarthy, a resident of Malibu, Calif., pleaded guilty to failing to report his ownership of and interest in a foreign financial account. In September 2009, Juergenn Homann of Saddle River, N.J., pleaded guilty to failure to file an F-BAR form.
Over the summer, UBS agreed to hand over information on an additional 4,450 U.S. clients under an agreement brokered by the Swiss and U.S. governments.
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