Asher Rubinstein interviewed on Bloomberg TV about the UBS settlement and offshore accounts.
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Asher Rubinstein has appeared on Bloomberg News multiple times in 2009
Asher Rubinstein has appeared on Bloomberg News multiple times in 2009
Two recent videos are available. Asher discusses the IRS initiative against non-compliant Offshore bank accounts, and the future of foreign banking.
Ken Rubinstein Discusses Offshore Planning in an Interview on Yahoo Finance.
Ken Rubinstein Discusses Offshore Planning in an Interview on Yahoo Finance.
On July 9, 2009, Ken was interviewed on Yahoo Finance. Click here to watch the video and read the accompanying article, titled “IRS “Turning Over Every Rock” to Raise Revenue: Obama Targeting Overseas Assets”.
“Last Minute” Efforts to Thwart UBS Disclosing Americans with Non-compliant Accounts
“Last Minute” Efforts to Thwart UBS Disclosing Americans with Non-compliant Accounts
by Asher Rubinstein, Esq.
Two noteworthy developments in the US Government’s litigation against UBS in federal court in Miami, seeking to obtain the names of 52,000 Americans with undeclared accounts at UBS in Switzerland:
First, on the eve of oral arguments scheduled to being next week, UBS filed a motion for discovery, which was denied by the court. Moving for discovery days before oral argument has the appearance of a stall tactic. Coupled with public statements from UBS that the bank is seeking a settlement, it appears that UBS fears this case going to trial next week.
Much more dramatic, however, is the report that the Swiss Government is “prepared to seize UBS client data rather than allow the bank to hand it over to the United States to settle a tax case.” (New York Time, July 9, 2009.) Apparently such governmental action would not only be in response to a settlement, but also to an order from the U.S. court. Arguing that “Swiss law prohibits UBS from complying with a possible order by the court in Miami”, the Swiss Department of Justice and Police posted a statement on its website that “all the necessary measures should be taken to prevent UBS from handing over the information on the 52,000 account holders demanded in the U.S. civil proceeding”.
The facts are clearly not in UBS’ favor here. UBS has already paid a $780 million settlement as part of a “deferred prosecution”, thus avoiding criminal indictment for assisting Americans in fraudulently hiding money offshore. Facts about the extent of UBS’ machinations in assisting tax fraud – – UBS bankers lying about their trips to the US to solicit wealthy clients, encrypting data, assisting in establishing offshore entities in order to obscure true beneficial ownership, even of smuggling diamonds into the US in toothpaste tubes – – have already come to light. Clearly, UBS is in a tenuous position of coming to the US to commit a crime, and then hiding behind Swiss law to keep mum about it.
We suspect that if the Swiss government does make good on its threat to “seize” the banking data, then UBS would attempt to argue that it is impossible to comply with a court order to release the data. In other words, the announcement of a Swiss government seizure of data would precipitate UBS’ claim of impossibility of performance.
We don’t believe that such a strategy would be successful. We suspect that UBS will be forced to settle, because (a) otherwise UBS would risk losing its valuable banking license in the US, (b) UBS has too many assets within the US, subject to US jurisdiction and potential attachment, and (c) should (a) and (b) occur, the effects will be felt not just at UBS but throughout the entire Swiss economy.
Moreover, as part of it’s “deferred prosecution” settlement of the criminal charges against it, UBS agreed to cooperate with the US and comply with court orders. Failure to provide the 52,000 names once ordered to by the US court on the grounds of “impossibility” could result in the reinstatement of the criminal prosecution against UBS. Additionally, the US court could rule that the impossibility was created expressly to avoid a contempt order and therefore not a true impossibility.
Americans with non-compliant accounts at UBS or other foreign banks, who have been following the IRS/UBS litigation to see whether supposed Swiss banking secrecy would cover them, are advised to consider the IRS’ Voluntary Disclosure program. Once the IRS gets the identities of the account holders (whether by settlement, court order or otherwise), it will be too late for the account holders to come forward and avoid criminal prosecution for tax fraud or expect any reduction in penalties. The Voluntary Disclosure program ends on September 23, 2009.
Recent Media Appearances for Rubinstein & Rubinstein
Recent Media Appearances for Rubinstein & Rubinstein
Ken Rubinstein’s article, I’m Not that Kind of Country , will be published in the July/August 2009 edition of the Journal of Taxation and Regulation of Financial Institutions. This article discusses Senator Levin’s proposed anti-tax haven legislation, the “Stop Tax Haven Abuse Act” (S. 506). Shortly after the Levin bill was announced, Senator Baucus and President Obama presented alternative legislation. Ken’s article discusses the future of offshore jurisdictions amidst the pending legislation.
Asher Rubinstein’s article New Switzerland-U.S. Tax Treaty Further Erodes Offshore Banking Secrecy; Questions Remain, but Disclosure Is Prudent was published in the July 29, 2009 edition of WorldWide Tax Daily . It will also be published in the July 6, 2009 edition of Tax Notes International. Asher’s article discusses the recent tax information agreement between Switzerland and the U.S., the IRS legal initiative against UBS, and tax compliance for offshore accounts, including the IRS Voluntary Disclosure Program and FBAR reporting.
On June 25, 2009, Asher Rubinstein once again was a guest on Pimm Fox’s show, Taking Stock, on Bloomberg television. Asher discussed offshore banking, tax compliance and the continuing crackdown against non-compliant offshore accounts.
In addition, we’ve recently been interviewed and quoted in many publications, including: Financial Times, the Wall Street Journal and London Times.
For copies of these articles and media appearances, please contact us.
The “Perfect Storm” Against Non-Compliant Foreign Banking, First Guilty Pleas by Americans with “Secret” UBS Accounts
The “Perfect Storm” Against Non-Compliant Foreign Banking, First Guilty Pleas by Americans with “Secret” UBS Accounts
by Asher Rubinstein, Esq.
As we’ve reported below , in an extraordinary act that belied generations of Swiss banking secrecy, UBS earlier this year revealed to the IRS the identities of approximately 350 Americans with non-compliant offshore accounts. UBS did this as part of a settlement with the Justice Department, which allowed UBS to avoid criminal indictment for aiding, abetting and encouraging tax fraud. A civil case against UBS in federal court in Miami is still pending. In the civil case, the IRS is seeking the identities of 52,000 Americans with allegedly non-declared UBS accounts.
The disclosure of the 350 names has led to two tax fraud prosecutions thus far, and both prosecutions have resulted in guilty pleas. On June 25, 2009, Steven Michael Rubinstein (no relation to us), pled guilty to filing a false tax return. He kept funds at UBS and in Monaco, in the name of an entity established with UBS assistance in the British Virgin Islands. He faces a prison sentence of three years, and millions of dollars in fines and penalties. In April, Robert Moran pled guilty to concealing more than $3 million at a UBS account. Moran faces a similar sentence.
Americans with non-compliant foreign accounts, whether at UBS or elsewhere, must understand the impact of recent events: offshore bank secrecy is dying, if not already dead. Last week, Switzerland agreed to a new exchange of information agreement with the U.S. ; Liechtenstein and other offshore banking jurisdictions have already signed such agreements. UBS is on the ropes in federal court in Miami and will likely be forced to give the IRS 52,000 names. HSBC and Credit Suisse are also being investigated, and we can expect a legal offensive against them and other banks. Domestically, prominent Senators and the President have introduced anti-tax haven legislation with severe penalties for non-compliance. The OECD campaign against tax havens is running alongside the IRS campaign, and has resulted in announcements of financial transparency from every significant offshore jurisdiction.
This is truly a “perfect storm” against offshore bank secrecy, with significant consequences for Americans with un-declared offshore funds. Guilty pleas by UBS account holders will be followed by more prosecutions and more guilty pleas.
Against this background, the IRS’s Foreign Account Voluntary Disclosure Program offers a form of amnesty and should be considered by American taxpayers with foreign accounts. The program does not apply to taxpayers once the IRS already knows about their foreign accounts, and the Voluntary Disclosure Program will expire in less than three months. Americans with offshore accounts should meet with us now regarding Voluntary Disclosure, before the IRS discovers the accounts. Within the “perfect storm” of the current anti-tax haven crackdown, discovery by the IRS is likely, in which case it will be too late to take advantage of amnesty.
New Switzerland-U.S. Tax Treaty Further Erodes Offshore Banking Secrecy; Questions Remain, but Disclosure Is Prudent
Switzerland and the U.S. have agreed on a new Tax Information Exchange Agreement (TIA), which will further erode offshore banking secrecy. The new agreement will allow the U.S. greater access to banking records regarding American taxpayers with accounts in Switzerland. This is the latest in a chain of events that have dramatically threatened offshore bank secrecy, including the I.R.S. legal challenge against UBS , investigations of CreditSuisse and HSBC, and the agreement of many offshore jurisdictions to greater transparency. Domestically, Senators Levin and Baucus and President Obama have proposed wide-ranging anti-tax haven legislation, with significant new disclosure requirements and penalties. Americans who have relied on offshore secrecy to avoid getting caught by the IRS need to re-examine their strategies.
The terms of the new Swiss-U.S. TIA have not been officially released; however, they are said to follow the Model Convention with Respect to Taxes on Income and on Capital, released by the Organization for Economic Cooperation and Development (OECD) in 2008. Under the terms of that Model Convention, Switzerland would have to share banking information for acts that are considered criminal acts under both U.S. and Swiss law. Previously, only affirmative tax fraud was recognized as a criminal act in both countries. Non-disclosure of foreign income was not a serious crime in Switzerland. If the new TIA follows the terms of the Model Convention, Switzerland would now have to change its internal law to criminalize non-reporting of income. This is one ambiguity of the new TIA.
The Swiss have announced that they will only comply with specific requests regarding specific accounts, and not IRS “fishing expeditions” like the current “John Doe” summons the U.S. is seeking to enforce against UBS . This limitation is not, however, contained in the Model Convention. Thus, it is not entirely clear at this point what the reach of the new TIA will be. It is also not known whether the new TIA will only be prospective or whether it will require disclosure of past accounts. It should be noted that the new TIA will be subject to approval of the Swiss Parliament and the Swiss Federal Council, as well as public referendum in Switzerland, where challenges to traditional Swiss banking secrecy have been met with vigorous opposition.
Another open question is whether the new agreement will result in the IRS dropping its litigation against UBS in a Miami federal court. The IRS is demanding that UBS disclose the identity of 52,000 Americans with allegedly non-compliant accounts. Oral argument is scheduled in July. The Swiss have indicated that the new agreement will effectively settle that case, while American officials have stated that the litigation will continue and the IRS will pursue disclosure of the 52,000 Americans with offshore accounts.
In light of these events, Americans with non-compliant offshore accounts should consider voluntary disclosure before the IRS discovers their accounts. The IRS is offering a sort of amnesty to taxpayers who voluntarily come forward before they are discovered. The IRS’ Voluntary Disclosure Program offers reduced penalties and a promise of no criminal prosecution. However, this program expires in less than three months and will not apply to taxpayers once the IRS gets their names.
Such pre-emptive disclosure is best made by qualified legal counsel, experienced in offshore compliance and IRS negotiations. Rubinstein & Rubinstein can approach the IRS on your behalf, demonstrate proper current compliance and negotiate to avoid criminal prosecution and reduce fines and penalties for past non-compliance. Although fines and penalties may be significant, they pale before the consequences of an IRS criminal prosecution.
In addition, Americans with signature authority or other interest in a foreign bank or financial accounts in 2008 are required to file Treasury Form TD F 90-22.1, “Report of Foreign Bank and Financial Accounts”, also known as the “FBAR” , by June 30, 2009. The penalties for failing to file Form TD F 90-22.1 on time can be severe. Therefore, if you held an interest in a foreign bank or financial account in 2008, it is imperative that the IRS receives Form TD F 90-22.1 by June 30, 2009. Participating in the Voluntary Disclosure Program will also remedy FBAR non-filing.
Asher Rubinstein represents many American clients with offshore accounts, in connection with Voluntary Disclosure, FBAR filing and conversion to tax-compliant offshore structures. If you have a non-compliant foreign account, contact us before the IRS contacts you. Given recent events, discovery by the IRS is likely.
Report of Foreign Bank and Financial Accounts
Report of Foreign Bank and Financial Accounts
Clients who held an interest in one or more foreign bank or financial accounts in 2008 are required to file Treasury Form TD F 90-22.1, “Report of Foreign Bank and Financial Accounts”, also known as the “FBAR”, by June 30, 2009.
Pursuant to the Treasury Regulations, each United States person who has a financial interest in or signature or other authority over any foreign financial account (including bank, securities or other types of financial accounts) in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must file the FBAR with the Department of the Treasury on or before June 30, of the succeeding year.
The penalties for failing to file Form TD F 90-22.1 on time can be harsh. Therefore, if you held an interest in a foreign bank or financial account in 2008, it is imperative that you complete and file Form TD F 90-22.1 by June 30, 2009.
If you have questions or concerns about Form TD F 90-22.1, or if you would like us to prepare and submit a FBAR for you, please contact us.
Protecting Business Interests: How to Protect Subchapter S-Corporations?
Your most valuable asset is very likely your ownership interest in your business; it is the primary source of your future income. Protecting your ownership interest in your business from future personal creditors is a paramount consideration in an asset protection plan. A business which operates as a sole proprietorship offers no asset protection whatsoever. Membership interests in an LLC, and shares of stock in a C-Corporation, can be conveyed to a Family Limited Partnership (FLP) for additional asset protection.
If you own shares in a Subchapter S-Corporation, however, these shares cannot be protected. The Internal Revenue Code (IRC) only allows for shares of an S-Corp to be owned by individuals. IRC §1361(b). Thus, entities such as FLPs may not own shares in an S-Corp. FLPs can own shares of a C-Corp or an LLC.
There are two ways to handle S-Corp shares within the context of asset protection. One way is to transfer the S-Corp shares to an FLP and allow the S-Corp to default to a C-Corp. Alternatively, you could re-organize the S-Corp into an LLC, and then protect the LLC membership interests within an FLP.
An S-Corp should not default to a C-Corp if either of the following two concerns are present:
- If the S-Corp owns appreciated assets (such as appreciated real estate), the IRS will treat the default as a sale of those assets (from the S-Corp to the C-Corp), subject to capital gains tax.
- C-Corps have an inherent “double taxation” issue: First, the C-Corporation pays corporate tax on its profits. Second, when the C-Corporation distributes the remaining profits as dividends to its shareholders, the shareholders pay income tax on the dividends received. The double tax issue would not exist if the C-Corporation can issue bonuses to its shareholders/employees, which would be deductions to the C-Corp and thus “zero out” its profits. However, if these bonuses are excessive, there is a danger that the IRS would deem the bonuses to be disguised dividends.
If these two situations cause concern, the S-Corp should re-organize as an LLC, rather than default to a C-Corp, and the membership interests in the new LLC may then be protected within an FLP.
An S-Corp may be re-organized, on a tax-free basis, into an LLC. This re-organization is a change in form of ownership. IRC § 368(a)(F). The business operations of the S-Corp, now an LLC, remain unchanged. Both LLCs and S-Corps are “pass through” tax entities, i.e., the entities themselves pay no tax; rather, the gains or losses “pass through” to the members of the LLC or shareholders of the S-Corp. (Thus, the “double taxation” issue of C-Corporations, discussed above, is avoided by both S-Corps and LLCs.) The “flow through” status of the S-Corp, now re-organized as an LLC, remains unchanged. In addition, there is no deemed sale of assets and resulting capital gains tax consequences, as there may be if an S-Corp defaults to a C-Corporation. IRC § 354(a).
Qualified tax counsel can prepare the documentation necessary for an S-to-LLC reorganization, complying with the proper tax laws and regulations. This must be done carefully, lest the IRS consider the reorganization to be a “conversion” of S-Corp to LLC, which would result in negative tax consequences. The following steps must properly occur:
a. An actual “reorganization” must take place;
b. There must be a valid business purpose;
c. There can be no change in the nature of the taxpayer’s capital position;
d. There must be a continuity of interest and control;
e. There must be continuity of business enterprise;
f. There must be a plan of reorganization.
If the S-Corp becomes an LLC in accordance with the steps specified above, the transaction will qualify as a “reorganization” under the Internal Revenue Code, and will be tax-free.
After a proper S-Corp to LLC reorganization, the LLC membership interests may be conveyed to an FLP. Once within an FLP, the LLC interests will be protected from future creditors.