Asher Rubinstein was interviewed by CNBC Asia “Squawk Box”
Kenneth Rubinstein Interviewed by Reuters on IRS Offshore Crackdown and Credit Suisse
Kenneth Rubinstein Interviewed by Reuters on IRS Offshore Crackdown and Credit Suisse
Reprinted from Reuters
Credit Suisse bankers indicted in U.S. tax case
by Kim Dixon
Thursday February 24, 2011 09:49:19 AM GMT
* Indictment: Bank maintained $3 bln in untaxed accounts
* German officials conduct raids on Credit Suisse offices
* U.S. officials looking beyond UBS for tax evasion (Adds byline, details from indictment, comment)
WASHINGTON, Feb 23 (Reuters) – A U.S. grand jury charged bankers at a Swiss bank, identified by a source as Credit Suisse, with aiding and abetting Americans in evading taxes, in a widening of the government’s probe into foreign banks.
The indictment, filed on Wednesday, charges four current and former bankers at a large Swiss international bank with conspiring to defraud the U.S. government.
The bank was not named in the court filings, but a source familiar with the case said it was Credit Suisse.
The indictment said the bank “maintained thousands of undeclared accounts containing approximately $3 billion in total assets under management.”
U.S. officials say they are probing other banks that may be helping Americans evade taxes abroad after UBS AG <UBS.N> <UBSN.VX> paid $780 million and agreed to hand over nearly 5,000 account names to the U.S. government to settle tax evasion charges.
“It didn’t take a rocket scientist to say if I was the government and I had to look at other banks, I’d be looking at Credit Suisse,” said Ken Rubinstein, an attorney in New York for wealthy American clients with offshore accounts.
UBS and Credit Suisse are the two biggest banks in Switzerland, a nation that prizes its banking secrecy.
A Credit Suisse spokesman declined to comment.
Marco Adami, Emanuel Agustoni, Michele Bergantino and Roger Schaerer are the bankers listed in the indictment.
The defendants are at large and being sought by U.S. authorities.
Earlier on Wednesday, German prosecutors conducted new raids on Credit Suisse offices, targeting four of the bank’s employees as part of an ongoing tax probe.
The indictment was filed in the U.S. District Court for the Eastern District of Virginia. (Criminal No. 1:11-CR-95)
MOVING MONEY
The indictment says the bank’s managers and bankers used its New York office to provide services for customers’ undeclared accounts and that they advised clients to use offshore credit cards linked to offshore accounts.
It also alleges defendants discouraged U.S. customers from taking part in the U.S. tax amnesty program that lured in 15,000 tax dodgers in 2009. The U.S. just revived that program, with less generous terms.
The court filing also names two unnamed private Swiss banks and an Israeli bank with headquarters in Tel Aviv, with a subsidiary in Switzerland.
The indictment alleges the bankers spurred their clients to move money from Credit Suisse to smaller Swiss banks, the Israeli bank and a bank in Hong Kong.
U.S. tax commissioner Douglas Shulman has said authorities are looking beyond Europe to Asia as money moves globally amid the U.S. probes into foreign banks.
In a separate case, on Tuesday, a U.S. law enforcement official said a Credit Suisse banker was arrested in New York and was being moved to Florida for a court appearance.
(Additional reporting by Kevin Gray in Ft. Lauderdale, Martin De Sa’Pinto in Zurich, Maria Aspan in New York and Jeremy Pelofsky in Washington) (Reporting by Kim Dixon; editing by John Wallace, Lisa Von Ahn and Bernard Orr)
Asher Rubinstein Interviewed by Swiss Media on IRS Offshore Crackdown and Credit Suisse
Asher Rubinstein Interviewed by Swiss Media on IRS Offshore Crackdown and Credit Suisse
Reprinted from swissinfo.ch
Tax evasion glare turned on Credit Suisse
by Matthew Allen, swissinfo.ch
Monday 28.02.2011
The spectre of tax evasion has come back to haunt Switzerland following the indictments of four current or former Credit Suisse staff in the United States.
Efforts by the Swiss authorities to purge the financial centre of ill-gotten gains, following the UBS debacle, have failed to deter countries from pursuing aggressive legal measures against other banks.
The US indictments on Thursday follow the arrest of another Credit Suisse employee and – in a separate case – another raid by the German authorities on the bank’s offices in that country.
One US tax lawyer has likened the latest action by the Department of Justice to the successful case brought against UBS in 2008. UBS was fined $780 million while the Swiss government had to lift the veil of banking secrecy a year later by releasing details of thousands of the bank’s clients.
“In 2009 we knew that UBS would be the tip of the iceberg and that other Swiss banks would follow,” Asher Rubinstein told swissinfo.ch. “We have now reached that moment.”
“There has long been a belief that other Swiss banks have to some extent facilitated tax fraud and the IRS (Internal Revenue Service) is now going after them.”
Guilty by association
This week, a federal grand jury in Virginia charged four bank wealth advisors with aiding and abetting US citizens to dodge taxes. It is alleged that the bankers – only one of whom is still at Credit Suisse – created thousands of offshore accounts with a combined value of $3 billion (SFr3 billion).
The incriminating evidence appears not to have been sourced from a whistleblower but could have come either from the handover of UBS client data or a US tax amnesty that netted 15,000 tax dodgers in 2009.
Credit Suisse has distanced itself from the charges by stating that they are aimed at individuals and not the bank. The bank said it is cooperating with the US authorities.
One of those accused told the Associated Press on Sunday that he would not cooperate and that he would not to travel to the US to answer the indictment. In an interview with the Der Sonntag newspaper, he also criticised the US authorities.
Under US corporate law, a company can be held culpable for the offences of its staff, according to US tax lawyer Scott Michel.
“If an employee, or group of employees, of a corporation is found to have committed a criminal offence related to their work then the corporation itself can also be charged with criminal conduct,” he told swissinfo.ch.
In other words, if the charges against the four suspects stick in court, it would be at the discretion of the Department of Justice (DoJ) whether to indict Credit Suisse.
Swiss coming clean?
In such a case prosecutors would judge whether senior managers encouraged the actions of individuals or if the bank’s compliance systems were negligently lax, Michel added. A lack of such evidence would still leave the bank liable, but could result in a more lenient stance from the US authorities.
Switzerland has vowed to clean up its act following the UBS prosecution. In addition to cutting the UBS client data deal with the US, Switzerland has promised to offer more legal assistance to countries investigating tax fraud and is negotiating a series of revised double taxation agreements.
But the latest legal strong arm tactics show that the US authorities are not entirely convinced that Switzerland is doing enough to clean up its act, according to Michel.
“There is a feeling that people in some Swiss banks were advising clients not to reveal their hidden accounts and were frustrating efforts to uncover information at the same time that the Swiss and US governments were negotiating to open things up,” he told swissinfo.ch.
German raids
Some other Swiss banks, including the Basel Cantonal Bank, have been recently linked in the US media to the continued tax evasion crackdown.
Michel added that it would be no coincidence that the Credit Suisse employee indictments followed just weeks after the announcement of another tax amnesty programme in the US. A large slice of the success of the 2009 programme was put down to the UBS prosecution a year earlier.
In the meantime, the German authorities this week launched another raid on Credit Suisse offices in Germany. The raids started last year, shortly after German tax offices bought several CDs of client data stolen from Swiss banks.
Switzerland announced at the end of last year that it would negotiate special treaties with both Germany and Britain that would oblige Swiss banks to pay backdated and future withholding taxes on offshore accounts held by citizens of those countries.
Credit Suisse chief executive Brady Dougan has repeatedly stated over the past two years that his bank is fully compliant with regulations of other countries. It appears that those assertions will be put to the test by the US and German authorities in the coming months.
Matthew Allen, swissinfo.ch
Asher Rubinstein Interviewed by Reuters About Tax Audits
Asher Rubinstein Interviewed by Reuters About Tax Audits
Reprinted From: Reuters Jan 25th 2011
“Are you afraid of a tax audit?”
Author: Toddi Gutner
Mark Berg did a very smart thing when the Internal Revenue Service (IRS) told him that he was about to be audited last year – he didn’t panic. “It strikes the fear of God in your heart when you get the [IRS audit] letter, though there is nothing to fear when you haven’t done anything wrong,” says Berg, president of Timothy Financial Counsel, Inc. and a national board member of National Association of Personal Financial Advisors (NAPFA).
He was flagged because of the high amount he gave to charity. But instead of just waiting for the audit to begin, he gathered together all of his receipts, put together a summary letter, and called the IRS prior to starting his information collection. “They were originally going to audit my whole Schedule A, but after speaking with the agent they narrowed it to just charity,” he says.
Berg’s lessons on how to manage an audit are likely to have widespread appeal as the Obama administration roles out its 2011 tax enforcements initiative. In an effort to close the budget deficit, the IRS plans to increase the number of audits by an estimated 10 percent over last year.
While the IRS doesn’t reveal the formula it uses to determine who to investigate, there are a number of red flags that may trigger IRS interest in your tax returns.
In general, the more complex the return and the more income from non-withholding, non-reporting sources, the higher the probability of an audit, says Stephen Bankler, a CPA in San Antonio, Texas. There are two categories that generate the highest probability of IRS interest: those who are self-employed, file a Schedule C and claim high deductions, and those who earn over a million dollars, he says. Both cases will arouse the suspicion of the IRS.
To avoid an audit, tax experts suggest staying within the industry standards. “The IRS has a table of national standards for every deduction based on income,” says Bonnie Lee, owner of Taxpertise, in Sonoma, California. She also recommends avoiding rounding numbers when taking deductions. Finally, don’t over inflate red flag deductions like automobile expense, meals, entertainment, travel and charitable contributions. “Take your valid deduction and make sure you have plenty of substantiation in case of audit,” she says.
Another strategy that might help avoid an audit is to essentially become “audit proof.” Consider having your tax counsel conduct a “friendly audit” – that is, a review of your financial activities, bookkeeping and record keeping procedures, and accounting practices to uncover and correct sensitive areas before they are discovered in an IRS audit, says Asher Rubinstein, a Manhattan tax attorney with Rubinstein & Rubinstein LLP.
Say you’re flagged for an audit – what should you do? It is important to note that while many people dread the audit aspect, about 75 percent of all audits are correspondence audits, says Bob Meighan, a vice president with TurboTax. That means, when you receive a letter from the IRS you just need to send in a closing statement or a broker’s statement and that can be the end of it. Only about 25 percent of the audits are field audits when an agent comes to your home or office.
Whether the IRS interest is for a correspondence audit or a field audit, realize that just because they have contacted you does not mean you have done anything wrong. “Audit test are generally made according to a computer model that test returns based on how dissimilar they are from a national norm,” says Rubinstein. “Quite often, after supplying information or documentation to the IRS (for example, receipts to substantiate a tax deduction), the IRS is satisfied and the file is then closed,” he says.
If it turns out that more information is needed, make sure you inquire about and understand the nature of the IRS inquiry and take notes during this process. Then immediately tell the agent that you’d like time to seek the advice from a tax representative, says Rubinstein. ” Once you make this request, you are under no obligation to answer any further questions,” he says.
There is no foolproof way to avoid the eye of the IRS, but with these simple strategies maybe you can minimize the chance they’ll come knocking at your door.
More Prosecutions Related to Offshore Accounts, and the Lessons to be Learned
We’ve written extensively about the IRS offensive against non-compliant foreign bank accounts and criminal prosecution of Americans with such accounts. Two recent criminal prosecutions are noteworthy because they represent a widening of the IRS campaign.
First, the criminal indictment against Samuel Upham is based on charges of conspiracy and aiding the filing of false tax returns. Mr. Upham himself was not the owner of a non-compliant UBS account at issue. The actual account owner was Mr. Upham’s mother, Sybil Upham, who is already facing criminal charges regarding her UBS account. Ms. Upham is one of the 4,500 Americans identified by UBS to the IRS in settlement of the criminal prosecution against the bank, notwithstanding prior promises of account secrecy.
The indictment against Mr. Upham is significant because although he was not the account owner (his mom was), he allegedly assisted the tax non-compliance, assisted in the filing of false tax returns and smuggled money into the U.S. The charges also include use of a Liechtenstein foundation and Hong Kong corporate entity in order to obscure the true ownership of the account. As we’ve written, prosecutors seem to be focusing on use of sham entities (trusts, foundations, corporations, etc.), although taxpayers who had accounts in their own names have been IRS targets as well.
The lesson here is that the IRS is not only investigating and prosecuting the owners of the undeclared foreign accounts. The IRS is also targeting people who facilitated and assisted in the non-compliance, including family members of account holders.
The second case involves a former UBS banker, Renzo Gadola, accused of advising and assisting Americans to evade taxes. Criminal charges against foreign bankers, and even lawyers, who facilitated tax fraud are not new. But the allegations in this latest prosecution are noteworthy.
First, Mr. Gadola utilized a smaller bank, Basler Kantonalbank, rather than UBS which was being investigated by the US Goverment, in the hopes of avoiding detection. Lesson one: even smaller banks are “on the radar”. We can now add Basler Kantonalbank (and presumably, other regional Swiss banks like Zurich Kantonalbank) to the list of banks being investigated, which include Credit Suisse, HSBC, Julius Baer, Liechtensteinische Landesbank and Bank Leumi.
Second, it is alleged that Mr. Gadola advised the US account holder that the account at Basler Kantonalbank would be too small to be detected. Lesson two: accounts of all sizes are vulnerable. The IRS does not want taxpayers to believe that an account under a certain size is “safe” from discovery.
Third, it is alleged that Mr. Gadola kept his US client’s funds in cash, advising “There is no paper trail.” Lesson three: there is always a paper trail or a wire transfer trail.
Fourth, it is alleged that Mr. Gadola advised his US client to falsify banking records to make the money look like a loan. Lesson four: this strategy will not work. It will also likely result in additional criminal charges.
Finally, Mr. Gadola advised his US client not to enroll in the Voluntary Disclosure Program by which the US client could have made his account tax-compliant and avoid criminal prosecution. Obviously the lesson here is that owners of non-compliant foreign accounts should consider the IRS voluntary disclosure program.
These two new criminal cases, both commenced in the last few weeks, show the vulnerability of non-compliant offshore accounts to discovery. Moreover, they show that the IRS is aware of the tactics and methods used by taxpayers, and their advisors, to avoid detection.
Please contact us if you have questions related to foreign accounts. We can advise on how to bring a foreign account into compliance. We can also advise if you are being investigated by the IRS in regard to an offshore account.
Newsflash: IRS Commissioner Further Comments on Possible New Offshore Voluntary Disclosure Program
We recently wrote that the IRS has hinted about a new voluntary disclosure program (VDP) for non-compliant foreign accounts. Our post from November 18, 2010 can be found here and discusses the earlier VDP that expired in 2009, as well as commentary about the possible penalties that might be part of a second, new VDP.
Last week, IRS Commissioner Shulman again stated that the IRS is considering a second VDP. Commissioner Shulman’s most recent remarks, following the earlier hints from November, suggest a strong possibility that a second VDP will be announced soon.
Clearly, following the IRS success against UBS, plus current IRS investigations of other banks such as HSBC, Credit Suisse, Julius Baer, Liechtensteinische Landesbank, Bank Leumi and others, the IRS has the upper hand in discovering and prosecuting tax fraud related to undeclared offshore accounts. Foreign bank secrecy has been further eroded by the passage of the HIRE Act earlier this year, which increases reporting obligations by US taxpayers with foreign holdings as well as new reporting obligations incumbent upon foreign banking institutions. Fines and penalties for undeclared offshore accounts and unreported foreign income are significantly increased by the HIRE Act.
Commissioner Shulman’s recent remarks make it clear that the IRS is not stopping at UBS alone. Other banks are next. Commissioner Shulman stated:
As I have said from the beginning, this was never about one country or one bank. The John Doe Summons [against UBS] was just one piece of a much larger effort underway here at the IRS on international tax compliance issues that is producing real results for U.S. taxpayers.
* * *
The VDP and UBS matters are significant, but there is obviously more to come. We have been scouring the vast quantity of data we received from the VDP applicants and from other sources. Although more data mining is still to be done, this information has already proved invaluable in supplementing and corroborating prior leads, as well as developing new leads, involving numerous banks, advisors and promoters from around the world, including Asia and the Middle East.
Clearly, a new voluntary disclosure program would be welcome for taxpayers who need to bring their foreign holdings into tax compliance. Presumably, a new VDP would also include clarification of what the penalties will be. The prior VDP, which ended in October 2009, imposed a special penalty of 20% of the highest aggregate balance of the offshore accounts. But taxpayers who voluntarily disclosed their foreign accounts after the expiration of the prior VDP face uncertainty of what the penalties would be. By law, the IRS is allowed to take 50% of the non-compliant account for each year that the account is non-compliant. Commissioner Shulman hinted about the new penalty regime:
Given its success, we are seriously considering another special offshore Voluntary Disclosure program. However, there will be some fundamental differences. Taxpayers will not get the same deal as those who came in under the original program. To be fair to those who came in before the deadline, the penalty – and thus the financial cost to participate – will increase. Let me say too that we expect to make the terms of any new program available to those who have already come in after October 2009 when that program expired. Stay tuned for more details as they become available.
We will continue to monitor the issue. In the interim, please contact us with any questions about foreign accounts , voluntary disclosures , tax compliance and offshore reporting issues.
2010 End of Year Memo to Clients
2010 End of Year Memo to Clients
To: Clients, colleagues and interested parties
From: Rubinstein & Rubinstein, LLP
Date: December 2010
Year-End Notes
As the year comes to a close, we take this opportunity to remind clients of several important issues that might impact upon their estate, tax and asset protection planning, to reflect upon a few significant accomplishments in 2010, and to offer suggestions for effective year-end tax planning.
I. Year-End 2010 Tax Planning & Anticipating the 2011 Tax Increases
A. Reduce Your Estate Taxes Via 2010 Gifting
Every year, we begin this memo by reminding clients that year-end gifting is an easy, tax-efficient way to reduce their taxable estate. This year, the message is all the more significant because legislation that is still pending in Congress would limit the tax benefit of such gifting.
The amount that an individual may gift to another individual, without tax consequences, is now $13,000. Gifting is an effective strategy to utilize in reducing estate tax liability. For example, if a husband and wife each gift $13,000 to three children, the value of the couple’s estate is decreased by $78,000.
Additionally, you may utilize your unified lifetime credit to avoid gift taxes and make one or more gifts of limited partnership interests equal in value to $1,000,000 (total value for all gifts). You will be required to file a gift tax return, but the gift taxes will be offset by your $1,000,000 unified lifetime credit. A husband and wife, together, may make joint gifts equal in total value to $2,000,000 in this manner.
Clients with Family Limited Partnerships should consider gifting an equivalent amount of limited partnership interests, so as to decrease the value of their estate. Clients have until December 31, 2010 to effectuate a gift for calendar year 2010. Clients should, in fact, make annual gifts of limited partnership interests, so that the value of their estates, over time, will decrease for estate tax purposes. As long as clients retain their general partner interests, however, clients will continue to control all assets within their partnership.
Gifting of partnership interests works hand-in-hand with the principal of discounting of those interests. Once discounted, more FLP interests can be gifted tax-free to the next generation, which results in more assets passing out of an individual’s taxable estate and thus decreased estate taxes. One short example may clarify how discounting and annual gifting work together to lower estate tax liability. If a client owns real property valued at $130,000, the client might gift the property to his or her child over a ten year period ($13,000 annual gift tax exclusion, over ten years). However, if the same property is owned by an FLP, the client may claim a 50% discount in the value of the limited partnership interests (for lack of marketability and lack of control). Now, with a discounted value of limited partnership interests of $65,000 (50% discount on $130,000), via annual gifts of $13,000 worth of partnership interests, it would take the client only five years to gift away her partnership interests and eliminate estate taxes due on that property. This is because a $13,000 gift equals 10% of the non-discounted FLP value ($13,000 = 10% of $130,000), but $13,000 equals 20% of the discounted FLP value ($13,000 = 20% of $65,000).
Further, in the current recessionary economy, now is the time to consider gifting assets that are presently at abnormally low values. The severe decline in the stock and real estate markets have created further built-in discounts for many assets. When the economy rebounds, these assets will begin to increase in value, and that future appreciation will occur outside your estate.
Furthermore, it is likely that the federal government will make unfavorable changes to the estate and gift tax laws in order to compensate for government deficits. If passed by Congress, pending legislation will eliminate the ability to discount the value of FLP gifts. Clients should consider taking advantage of current favorable laws while they still exist.
We realize that these are not simple concepts, and we welcome your questions. We can advise you as to appropriate FLP discounts, prepare memoranda of gift for you, as well as the partnership valuation and gift valuation calculation letters (necessary for the IRS).
B. Looking Ahead to 2011: Tax Increases and What To Do Now
We can expect higher income and capital gains taxes in 2011. Congress may also amend the tax laws to eliminate some favorable tax planning strategies. Clients are therefore advised to engage in tax planning now, in order to have the benefit of “grandfathering” current beneficial tax strategies before changes in the tax law. Further, with the estate tax revival in 2011, the time to lower your taxable estate, thus leaving more for your family and heirs and less to the IRS, is now. We can help explain tax changes, how they may effect your specific situation, and how to legally minimize your taxes.
There are various steps that taxpayers should consider now for effective tax minimization:
1. Sell appreciated property before loss of capital gains treatment and avoid tax via Charitable Remainder Trusts and international tax planning strategies (e.g. tax advantaged foreign annuities and foreign private placement life insurance).
2. Convert 401(k)s to Charitable Remainder Unitrust IRAs before the government taxes 401(k)s.
3. Clients should also consider taking income in 2010, rather than deferring income to 2011 with its likely higher tax rates. As a corollary, clients may wish to defer losses to 2011 to offset expected 2011 income at higher tax rates.
4. Engage in income tax planning via tax-complaint strategies that take advantage of favorable reciprocal tax treaties, before the new tax increases.
5. Consider a Dynasty Trust. Such a trust allows the preservation of assets for one’s immediate and remote descendants, along with offering asset protection from creditors, as well as delay of the estate tax bite for many generations. The trust can distribute income to beneficiaries (who will pay income tax on these distributions of income), but principal is preserved, asset-protected and grows tax-free. The estate tax would potentially apply at the eventual distribution of principal, many generations down the line, but your descendants would have many years to plan around the estate tax.
6. Consider a Charitable Remainder Trust. One of the uncertainties facing taxation is how much will capital gains tax increase? Contributing appreciated assets, such as stock, family businesses and real estate to a Charitable Remainder Trust during 2010 is a good way to avoid capital gains tax. You and your beneficiaries can enjoy distributions from the trust, and at the end of the trust term, a remainder equal to ten percent of the original contribution to the trust may go to a qualified charity. You will receive an additional tax benefit: a deduction equal to the present value of the remainder that may be left to charity. The benefits: a low-tax income stream for you and your beneficiaries, philanthropy of your choice, a charitable deduction and significant capital gains tax minimization.
7. It is also possible to minimize the tax on appreciated assets by exchanging such assets for a foreign annuity policy. The exchange of assets for an annuity policy is not taxable nor reportable (at least until 2012). Further, capital gains within the annuity policy would not be taxable. Annuity payments can be deferred until retirement or advanced age, at which point tax would be due on the income component of the annuity payments. Moreover, the annuity policy and the assets within the policy would be completely asset-protected from future creditors. For complete tax elimination, a foreign life insurance policy can be incorporated, which would allow one to borrow against the cash value of the policy, completely free of taxation (the amounts borrowed, rather than having to be repaid, would be deducted from the ultimate death benefit). Such tax strategies involving foreign annuities and foreign life insurance offer the most advanced asset protection from civil creditors, as well as significant tax minimization or even tax elimination.
Please call our office to discuss any of these tax minimization strategies.
II. Offshore Considerations
This year was dramatic in the offshore world. The IRS’ success against UBS eroded Swiss banking secrecy, effectively ending “going offshore” to hide money from the IRS. Going offshore for asset protection from civil creditors, however, is still viable and effective, but must be tax complaint.
A. Erosion of Offshore Tax Secrecy and Encouraging Tax Compliance
Facing a criminal indictment for encouraging and facilitating tax fraud, in 2010 UBS revealed the names of some 4,500 Americans with accounts they were assured were “secret”.
- Switzerland’s Parliament in 2010 changed long-standing Swiss banking secrecy laws to allow for cooperation and exchange of information with the IRS for both criminal and civil tax investigations.
- The IRS is also investigating HSBC, Credit Suisse, Bank Julius Baer, Bank Leumi, Liechtensteinsche Landesbank and others. Banks in other countries will also be targeted. The IRS is establishing field offices in Panama, Australia and China.
- Domestically, Congress passed the HIRE Act (P.L.111-147) which included various provisions designed to combat offshore tax avoidance by targeting foreign accounts and Americans who own them. New legislation seeks increases to the IRS budget and manpower to pursue undeclared money offshore, including hiring 800 IRS special agents to investigate foreign accounts. While having an offshore account is still legal, the account is subject to increased reporting requirements.
- In light of the above events, many clients have retained us to make their foreign accounts tax-compliant. We represent dozens of clients in the IRS Voluntary Disclosure Program (VDP). Although the VDP officially ended in 2009, the IRS still maintains a general voluntary disclosure policy. Throughout 2010, we continued to represent taxpayers with foreign accounts before the IRS, making their accounts compliant, repatriating the foreign funds and avoiding criminal prosecution.
- Clients in the IRS Voluntary Disclosure Program should bring their accounts into tax compliance on the state level as well. Some states, such as Connecticut and New Jersey, had formal programs in 2010 for offshore accounts. Other states, such as New York, encourage compliance via a general voluntary disclosure. The IRS shares information with state governments, including that a federal tax return was amended to report foreign income. Please contact us regarding tax compliance on the state and federal levels.
B. Offshore Asset Protection and Tax-Complaint Planning Is Still Legal and Effective
We have long counseled that non-reporting of foreign assets to the IRS and relying on supposed offshore “secrecy” in order to avoid taxation is unlawful, unwise and would negate effective asset protection. Indeed, we have always emphasized that effective asset protection does not rely on secrecy; it is based on the careful use of domestic and foreign asset protection laws.
Although “secret tax havens” no longer exist for non-compliant accounts, politically, socially and economically stable and secure jurisdictions do exist for tax-compliant asset protection planning and for tax-compliant strategies to minimize US taxation on foreign income. Foreign annuities, international insurance, offshore non-grantor trusts and other international vehicles still serve as the centerpieces of effective tax minimization plans that comply with US and foreign tax laws.
We have various tax-compliant offshore strategies to accomplish both asset protection and tax minimization benefits. These strategies do not rely upon secrecy. Rather, the strategies involve complete disclosure, compliance and safety in utilizing well-credentialed offshore institutions. In a 2008 ruling, U.S. v. Boulware, 128 S. Ct. 1168, the U.S. Supreme Court reaffirmed the position that it is the legal right of a taxpayer to decrease the amount of his taxes by means which the law permits. Clients can be assured that their offshore assets, and the tax-favorable profits that they earn, may be absolutely legally protected. We will be pleased to answer your questions regarding tax compliant offshore planning.
A 2010 decision by the highest court in Liechtenstein, in favor of one of our clients’ Liechtenstein trust, reaffirmed that offshore asset protection is still sound, legal and totally effective. The trust funds were administered and controlled by a licensed, bonded, qualified and reputable trustee in Liechtenstein. The trustee and the trust assets were outside the reach of US court jurisdiction. The client’s creditor was forced to commence a new lawsuit in Liechtenstein, at great effort and expense. That creditor ultimately lost. Our client’s assets remain absolutely safe and secure in her Liechtenstein trust.
C. What If You Still Have a Non-Disclosed Foreign Account?
The deadline for the IRS Voluntary Disclosure Program for foreign accounts expired on October 15, 2009. If you are the owner of a foreign account, and you did not come forward under the Voluntary Disclosure Program, what are your options now?
Option One: come forward now. The IRS will still welcome your voluntary disclosure, even after October 15, 2009. In fact, the IRS has welcomed voluntary disclosures long before this most recent, widely publicized program for foreign accounts. The difference is that after October 15, 2009, the penalties are higher. Still, criminal prosecution is usually avoided if you come forward before you are caught. Thus, if you have not entered the Voluntary Disclosure Program, you may still come forward; you will pay penalties higher than those who came forward in 2009, but they will still be significantly lower than if you don’t come forward and the IRS catches you. In that case, jail time for criminal tax fraud is also a frightening possibility.
But some people will not voluntarily come forward. They do not want to disclose their offshore accounts, and they do not want to give any portion of their foreign assets to the IRS. What can they do?
Option Two: convert your account to a tax-compliant structure. We have long counseled the use of tax-compliant strategies to minimize U.S. taxation of foreign accounts. We also advise clients on the legitimization of non-compliant offshore assets. We counsel clients regarding the proper steps to transform a non-compliant offshore account into one that complies with current US laws. Although we cannot erase a non-compliant past, we can ensure full compliance going forward. Such steps may significantly reduce the risk of prosecution for previous violations.
Option Three: do nothing and hope that the IRS does not discover your account. You would be relying on past banking secrecy as a means of future protection. However, as the events of 2010 have proven (see II.A. above), foreign banking secrecy no longer exists. We need only look to UBS’ disclosure of thousands of names of Americans with accounts they thought were protected under so-called Swiss banking secrecy, or the proliferation of tax exchange agreements between the US and numerous foreign tax havens. In light of this new world order, sooner or later the IRS will likely find your foreign account and then it will be too late. This “do nothing” strategy is not recommended.
Failing to remedy a non-compliant offshore account by voluntary disclosure (even now) or by converting to a tax-compliant structure puts you at serious risk of harsh penalties in the event of discovery, including IRS criminal prosecution. As recent events have proven, discovery is very likely. Contact us before the IRS finds you.
D. Antigua Asset Protection Laws Drafted by Rubinstein & Rubinstein
In 2007 and 2008, we advised the Government of Antigua on Antigua’s asset protection, trust and LLC legislation.
In February 2009, the Antigua International Trust Act, International Foundations Act and International LLC act, all of which were drafted by Rubinstein & Rubinstein, became law.
In 2010, we utilized the new Antigua laws on behalf of numerous clients, whose assets are protected in Antigua.
The new laws offer the world’s most secure and confidential environment for offshore asset protection, wealth preservation and tax minimization. The new laws make it nearly impossible for foreign creditors to reach assets protected by Antigua trusts or foundations. The statutes include a very short statute of limitations for creditor claims and limit a creditor’s ability to prove fraudulent conveyance claims. In addition, the legislation contains strong protections against asset repatriation, which prevent foreign courts and creditors from reaching assets protected in Antigua. As a result, Antigua is a premier jurisdiction for offshore asset protection.
E. 2010 Asset Protection Victories: Foreign Trust Survives Creditor Challenge
Our clients have enjoyed more than a few significant victories in the areas of domestic and offshore asset protection. Here is one noteworthy example.
In 2004, our client established an irrevocable asset protection trust in Liechtenstein with funds totaling $1.2 million. The client filed all required IRS forms relating to the funding of the trust and paid US tax annually on all trust income. In 2006, a US creditor obtained a judgment against the client. However, the client had minimal attachable assets in the U.S.
In 2008, the creditor commenced a legal action in Liechtenstein, hoping to get to the assets in the trust. Every Liechtenstein court, from the trial court all the way up to the highest court of Liechtenstein in 2010, ruled against the creditor and determined that the Liechtenstein courts lacked jurisdiction over our client. Thus, the trust assets could not be taken to satisfy the creditor’s judgment. Our client’s assets will remain safe in Liechtenstein.
This case proves that offshore asset protection, when done properly and lawfully and with complete disclosure to the IRS, is completely legal and 100% effective.
III. Asset Protection for Physicians, Property Owners, Financial Professionals/Investment Advisors and Others
A. Doctors: Protect Your Assets Because Insurance Fees Will Soon Go Higher
Medical practitioners should be aware of recent developments which mandate having a proper asset protection plan in place.
In March of 2009, former New York State Governor Patterson and the NY legislature agreed to remove the limitations on legal fees for medical malpractice attorneys. This will result in larger legal fee awards for plaintiff lawyers who target doctors, hospitals and other medical professionals. Insurance companies will soon be paying bigger legal fee awards, which will cause medical malpractice insurance rates to rise, yet again.
Plaintiffs already have an incentive to sue a doctor: doctors are perceived as wealthy deep pockets. Moreover, plaintiffs often believe that a doctor’s insurance company will offer some money in settlement to make the case go away. Now, after the legislative change removing the maximum legal fee awards, plaintiffs’ attorneys have even greater incentives to sue doctors.
Doctors must take steps to protect themselves from lawsuits.
Domestic asset protection (for example, a family limited partnership) will, if done properly, be 100% effective against all future claims, and should serve to discourage future lawsuits. Tax compliant offshore asset protection will absolutely protect assets against all claims.
Asset protection is designed to give defendants (including doctors and any other professional in a high-liability industry) leverage to force a favorable settlement within the parameters of their malpractice coverage. One caveat: it is imperative that physicians protect themselves before the commencement of a lawsuit.
B. Asset Protection for Landlords, Property Owners and Real Estate Investors
Landlords continue to face substantial increases in liability exposure as a result of a 2008 New York Court of Appeals decision, Sanatass v. Consolidated Investing Co., which expanded the scope of the “scaffold law”. Now, property owners are absolutely liable for elevation-related injuries (those involving the use of ladders, scaffolding, hoists, etc.) on their property. The case held that a property owner was liable even when the contractor was hired by a tenant in direct violation of a lease provision prohibiting the tenant from altering the premises without the property owner’s permission. Most importantly, this liability is absolute; i.e., the owner is liable even if, as in this case, he did nothing wrong!
With the new broad and absolute interpretation of the “scaffold law”, owners of real property can expect more lawsuits resulting from elevation-related injuries. This expansion of property owner liability comes at a time when property owners are already facing significant legal challenges from slips and falls, lead paint, mold, asbestos, fiberglass, Chinese drywall and other lawsuits. In addition, the current recession, the decline in property values and the increase in vacancy rates create an increased risk of lawsuits from lenders, regulators and unhappy investors. Considering the litigation risks and changes in the interpretations of the law, it is clear that property owners must take proactive steps to protect their assets.
Effective asset protection will discourage lawsuits and offer security against future creditors. It will also allow landlords, doctors and other professionals to reduce the amount of liability insurance they must carry to normal, affordable levels.
C. Asset Protection for Financial Professionals, Hedge Fund Managers and Investment Advisors
During 2010, we’ve seen the emergence of a new group of clients interested in asset protection: investment advisors, hedge fund managers and other financial professionals. This group is faced with an increase in lawsuits brought by litigious investors against their financial advisors and those charged with making investment decisions. As investors seek to blame others for investment losses, plaintiffs are now suing fund managers personally, in addition to suing the fund itself. In the past, it was routine to sue the fund or financial institution; naming the fund manager or investment advisor personally is relatively new, but something that we are seeing in increasing numbers.
In addition, government investigation and prosecution of financial firms, including the 2010 charges against previously-untouchable Goldman Sachs, add a further challenge for investment advisors and financial professionals. Individual professionals can be investigated and charged, in addition to the firm or fund itself. A finding of wrongdoing, or criminal charges, could form from the basis of a civil suit by investors against the investment advisor or money manager.
While in the past, hedge fund managers and investment advisors could take comfort in the indemnification offered by their funds or investment houses, these days, adequate indemnification is far from certain. For one thing, indemnification would not occur in case of negligence or activity determined to run afoul of law, or even activity deemed to be contrary to internal fund or investment house policy. Of greater importance, indemnification is “after-the-fact”; it seeks fund reimbursement after you have already lost your assets. Proper asset protection is pre-emptive; it is designed to discourage lawsuits in the first place and to protect your assets from future claimants. It eliminates the need for indemnification or, at the least, significantly reduces the amount of indemnification needed.
Proper asset protection strategies offer financial professionals piece of mind and provide the protection their hard-earned assets need to withstand the inevitable attacks by investors looking to blame someone else for their investment losses.
IV. Protecting Assets From Divorce: New Law Requires Anticipatory Planning
In New York, under a 2009 court rule and a parallel new state law, a couple’s assets are automatically frozen upon the filing or receipt of a summons in a matrimonial action. In 2010, New York State passed “no fault” divorce law. This new regime necessitates advance asset protection planning if divorce is contemplated.
In the past, if one spouse wanted to protect assets from impending divorce, she could do so, provided she had not already received a Restraining Order from a court. Under the new law, as soon as a spouse files an action for divorce, marital assets are automatically frozen. The new rule restraining asset transfers is binding on a plaintiff immediately when the summons is filed, and on a defendant upon receipt of service of the summons. Thus, persons facing the threat of divorce must plan ahead. The bottom line: Don’t wait for a divorce; if the marriage is shaky, protect your assets well in advance.
V. Rubinstein & Rubinstein Star Exemption Court Victory Now Codified as Law
Rubinstein & Rubinstein’s 2003 court victory against a New York State municipality that had denied the STAR exemption for personal residences owned by Family Limited Partnerships has been codified as law in New York. In 2009, the New York State Legislature amended section 425 of the Real Property Tax Law to include dwellings owned by qualified limited partnerships, including FLPs, as eligible for the STAR exemption.
There is an opportunity here for clients interested in pursuing refunds based upon an improper denial of the STAR exemption in past years. If you are interested in pursuing the opportunity of refunds for past denials, please contact our office.
VI. What’s on the Horizon for 2011?
The current state of the economy, the election of a new Congress, new offshore reporting requirements, as well as other recent changes will make 2011 a pivotal year for taxpayers.
A. More Tax Audits and More IRS Scrutiny
In addition to raising taxes, the government is also more aggressively enforcing tax laws, tightening or closing loopholes and pursuing tax evaders. The IRS is stepping up its investigations of possible tax abuse and tax evasion, pursuing improper “tax shelters” and other abusive transactions, and increasing audits and tax investigations.
What should you do?
First, work with competent, experienced tax counsel, who utilize proven, tax-complaint strategies.
Second, have tax counsel conduct a “friendly audit” – review your financial activities, bookkeeping and record keeping procedures, and accounting practices to uncover and correct sensitive areas before they are discovered in an IRS audit. Become essentially “audit proof”.
We have earned a reputation for experience, expertise and creativity in the development of sophisticated tax-complaint domestic and offshore tax strategies, designed to maximize asset preservation and to minimize taxes. We have been instrumental in the development of creative, tax compliant domestic and offshore strategies for the elimination, deferral or minimization of capital gains tax, income tax and estate tax.
If you are being audited or investigated by the IRS or a state tax authority, hire legal counsel with a proven track record of success against the government.
Rubinstein & Rubinstein, LLP has been advocating on behalf of taxpayers for close to twenty years. Our attorneys have extensive experience in representing clients before the IRS and before state tax departments.
B. New Disclosure Requirements for Offshore Entities, Investments and Financial Accounts
The HIRE (Hiring Incentives to Restore Employment) Act was signed into law in March 2010 and imposes strict reporting and disclosure requirements for foreign financial accounts, trusts and other entities. In addition, in 2010 the Treasury Department proposed new rules which bring foreign annuities and foreign life insurance (which previously were not subject to government reporting) within the scope of disclosure requirements. The new reporting rules will begin to take effect in 2011 and 2012. The new rules are complex. Please contact us to discuss offshore tax compliance and reporting issues.
C. Continued IRS Offensive Against Non-Compliant Foreign Accounts
Following its success against UBS (see II.A., above), we expect the IRS to pursue offshore tax fraud investigations at other banks and in other countries. If you have a non-compliant or undeclared foreign account, we can help you bring it into compliance. If you are being investigated by the IRS, we can represent you, defend you and negotiate for lower fines and penalties and for civil, rather than criminal, prosecution.
VII. Website/Media Attention
We continue to update our website (www.assetlawyer.com) and blog regularly, alerting clients to legal developments in the asset protection and tax worlds. We encourage you to check in regularly and we welcome your questions, comments and suggestions.
Finally, we take a moment to alert you that our performance and expertise have been recognized by media around the world. In 2010, Ken and Asher Rubinstein were interviewed, appeared and were published in:
- Bloomberg TV and radio
- CNBC (US, Europe and Asia)
- Yahoo! Finance
- CNN.Money
- Dow Jones
- Wall Street Journal
- Swiss TV (Schweizer Fernsehen)
- Reuters
- The Times of London
- Forbes.com
- National Public Radio (NPR)
- Wealth Briefing
- Tax Notes International
- Financial Times
- Hedge Fund Alert
- Entrepreneur Magazine
- The Atlanta Post
- WebCPA
- Family Wealth Report
- MyLegal.com
- Indus Business Journal
- Physician’s Money Digest
- National Post (Canada)
- Fox Business
- The New York Times Deal Book
- Tribune de Geneve (Switzerland)
- Cash (Switzerland)
- Valori (Italy)
- ACA (American Citizens Abroad), and others.
We are very proud and humbled by this favorable recognition, and hope that you, our clients, see it as an endorsement of the quality of our legal services on your behalf.
We at Rubinstein & Rubinstein, LLP wish you a happy and healthy holiday season and a happy, prosperous and well-protected new year.
“The Role of the Attorney in the Voluntary Disclosure Process” by Asher Rubinstein, published in Tax Notes International
The Role of the Attorney in the Voluntary Disclosure Process
by Asher Rubinstein, published in Tax Notes International – Vol. 60, No. 8, November 22, 2010
Many people wonder if they need an attorney to represent them in connection with a voluntary disclosure of a foreign account to the IRS. They wonder if they can, or should, make a disclosure to the IRS themselves. Perhaps they believe that the process is simple: contact the IRS, tell the IRS about the account, pay some back taxes, and they’re done. Other people reason that if the IRS is going to impose a penalty based on a percentage of the value of the foreign account, and the penalty will apply whether or not the taxpayer is represented by legal counsel, then why go through the additional expense of paying a lawyer?
The Importance of Representation
There are various reasons why representation by an attorney is important in making a voluntary disclosure. First, a noncompliant foreign account can have criminal consequences. For that reason alone, representation by legal counsel is important to minimize the criminal implications (that is, criminal charges, potential fines, penalties, and incarceration).
The lawyer should first gather the facts regarding the foreign account: At what bank, in what country? What is the source of funds in the account? Is there an entity involved, such as a foreign trust, corporation, or foundation? Has the client received communication that the foreign account is being disclosed? Has the bank asked the client to sign a Form W-9? Were illegal funds deposited into the account? Was money laundering involved? These questions and others will frame the possibilities of discovery of the account, help determine whether the client will be accepted into the voluntary disclosure program, and determine the risks of criminal prosecution.
The lawyer should assess the risk of criminal consequences or whether the facts will confine the situation to the civil realm. If anything, this initial assessment could, at a minimum, comfort the client that he may not be going to jail.
The lawyer should also provide the client with a roadmap of possible courses of action regarding the offshore account. For instance, what happens if the client doesn’t disclose the account? What are the possibilities of IRS discovery of the account, and what would be the consequences in that event?
One course of action might be to convert the foreign account into a tax-compliant structure. The attorney may counsel the client on transforming a noncompliant offshore account into one that complies with current U.S. law. Although the attorney cannot erase a noncompliant past, the attorney can ensure current and future compliance. Converting a noncompliant foreign account into a compliant structure is often done in tandem with a voluntary disclosure. In other words, make amends for past noncompliance, and ensure ongoing compliance.
The attorney should also explore the possibility of filing the proper reporting documents while not formally applying for the voluntary disclosure program. This avenue may be appropriate, for example, for accounts that did not earn U.S. taxable income and earned only de minimis income, or for clients who did not own a foreign account but had signatory authority over the account of a family member. If no U.S. tax returns have to be amended, penalties may be entirely avoided. That determination requires the expertise of experienced tax attorneys.
All these possible courses of action will vary depending on the client’s specific situation. Clients and their foreign accounts all have different histories and family situations. The nature of the client’s strategy will depend on the client’s unique facts and circumstances, and the attorney is the proper adviser to assess the background facts and recommend how to proceed.
Examples of Previous Cases
In one case that my firm handled, a U.S. client inherited a complex web of foreign corporations owned by foreign trusts established by a non-U.S. parent. As attorneys, we had to first untangle issues of international corporate taxation and liaise with the foreign trustees before giving our U.S. client proper guidance on how to proceed.
We have also seen many instances of foreign accounts established by parents who are now deceased. We have thus had to address issues of estate taxation and probate in order to properly guide the clients on foreign account compliance. We represented a brother who was in litigation with his sister over their inheritance. The parents had foreign accounts, and we were called on to provide advice regarding inheritance of the accounts and making them compliant.
One client had a foreign account but was in the midst of a bitter divorce. This led to issues of whether the foreign account might be marital property, as well as strategic issues of disclosure of the account because of the contest over the couple’s assets.
Many foreign account matters also involve foreign taxation issues. In one case, a client had to decide whether to disclose an account to the IRS, to the German tax authorities, or to both, and we addressed the application of tax treaties to the income earned in the account.
Thus, the role of the attorney often involves not only the client’s unique situation, but also the intersection of other areas of law, including domestic and international taxation and corporate, marital, family, estate, and international law. While addressing the client’s micro issues, the lawyer must also consider a broader, more global context.
Representation Before the IRS
Of course, closer to home, representing the client before the IRS is the threshold concern, and the attorney is the client’s advocate for becoming tax compliant and avoiding criminal consequences. Even if a client will ultimately avoid criminal prosecution by making a voluntary disclosure, the client must still submit to the scrutiny of the IRS Criminal Investigation division. A CI agent will be assigned to the client’s case, and this agent will require specific information about the client, the account, the source of funds, and other details. A qualified lawyer should assist the client during the CI investigation.
Legal counsel is necessary when interacting with the IRS in order to protect the client from making incriminating statements or giving the IRS documents that may be prejudicial. Someone representing himself may reveal too much to the IRS, and he should have the benefit of legal counsel to determine what to say, how and when to say it, and what documents to give to the IRS.
In many cases, the role of the attorney is to identify and respond to hidden dangers. We represented a family who left their home country after a military coup because they feared religious persecution. The family placed their savings in a Swiss account – not to hide funds from taxation, but for safety and security. When we noticed that a sister’s name was on the account years ago, we had to address the issue of the brother wanting to disclose the account to the IRS, but the sister not wanting to disclose. The brother’s disclosure alone would have pointed the IRS directly at the sister. We counseled the family in their difficult choice of either both coming forward or neither coming forward and both assuming certain risks.
Attorneys also have experience in dealing with the IRS and its procedures. Experienced attorneys may have preexisting, professional relationships with IRS agents that may benefit the client. A good tax lawyer is well versed in the administrative mechanisms of the IRS and how to navigate the bureaucracy, saving the client time and aggravation.
Serving the Client’s Interests
While IRS agents may not have much discretion in assessing penalties, a good attorney will argue on behalf of the client to achieve the best results possible. If the client is unhappy with the IRS agent’s assessment of penalties, the attorney can advise the client on whether to appeal and challenge the IRS determination.
Thus, the role of the attorney in a voluntary disclosure is multifaceted. Attorneys:
- minimize the criminal exposure;
- are family advisers;
- bring noncompliant foreign accounts into tax compliance;
- identify issues and risks;
- give clarity when multiple areas of domestic and international law intersect;
- advance the client’s interests before the IRS; and
- guide the client through the administrative process as smoothly as possible.
Yes, at the end of the process, the client may pay the same back taxes, interest, and penalties as if the client were not represented by counsel. However, along the way, the client benefits from the lawyer’s mitigation of criminal consequences, identification and response to unseen dangers and risks, legal analysis, strategic guidance, and experience with the IRS.
Newsflash: IRS Hints to a New Voluntary Disclosure Program for Foreign Bank Accounts
Newsflash: IRS Hints to a New Voluntary Disclosure Program for Foreign Bank Accounts
by Asher Rubinstein
IRS Commissioner Doug Shulman yesterday hinted that the IRS may offer another voluntary disclosure program for US taxpayers with non-compliant offshore accounts.
The IRS has long maintained a general voluntary disclosure policy, whereby US taxpayers can correct tax errors and non-compliance (e.g., undeclared income, improper deductions, etc.), so long as the IRS did not already know about the non-compliance. The benefits of such a voluntary disclosure are lower fines and penalties and avoidance of criminal prosecution.
In addition to this long-running voluntary disclosure policy, the IRS offered a specific Voluntary Disclosure Program (VDP) for undeclared foreign accounts, offering a penalty cap of 20% of the highest account balance over the past six years. However, that specific VDP ended on October 15, 2009.
Taxpayers who came forward after October 15, 2009 made their disclosure under the IRS general disclosure policy, rather than the specific VDP and its 20% penalty. Thus, for disclosures made after October 15, 2009, the big unknown is what the penalty would be. As IRS Commissioner Shulman noted, “we understand [taxpayers’] anxiety and are actively considering another predictable voluntary disclosure program, although with higher penalties than for the first group.”
What can we make of the IRS hinting at a new voluntary disclosure program for foreign accounts?
First, we welcome a new offshore voluntary disclosure program as an opportunity for people to bring their foreign accounts into compliance, lower their potential fines and penalties, and avoid criminal prosecution for tax fraud.
Second, we look forward to clarity as to the penalties that will apply to new disclosures. Ever since expiration of the VDP in October 2009, the penalty remains the big unknown. Even IRS agents with whom we speak are flummoxed at the lack of guidance as to what the penalty will be. 20%? Unlikely, because it would reward late filers with the same benefit as if they had enrolled into the VDP before it expired last October. By law, the IRS can take 50% of the value of the account for each year. But in its tax fraud prosecutions, the government has been imposing a 50% penalty for a single year (the year with the highest aggregate account balance). So it seems reasonable that the government would not exceed 50%/single year as a voluntary disclosure penalty, when that seems to be the standard for a criminal defendant. However, there has not been official guidance from the IRS thus far. We expect that a new voluntary disclosure program will provide some explicit guidance. Otherwise, it is unlikely that additional taxpayers will come forward and make disclosure, relying on a leap of faith that the IRS will be lenient in its penalty regime.
What is certain, however, is that the IRS will continue and expand its offensive against those US taxpayers who still maintain non-compliant foreign accounts. A new VDP would be a welcome means for such taxpayers who missed the first VDP to now come forward, correct their non-compliance, avoid criminal prosecution and be able to sleep at night. At the same time that the IRS hinted to the possibility of a new offshore voluntary disclosure program, the IRS also spoke about its plans to move beyond UBS and target other banks, in other countries, and US taxpayers who have undeclared accounts. “We have additional cases and banks in our sights,” said IRS Commissioner Shulman. In an ominous threat to US owners of undisclosed foreign accounts, Shulman stressed that “this has never been about one bank or one country. We’ve produced results and will continue to produce results.” In fact, this firm has information that the IRS investigation has already spread to banks in India and Israel, including HSBC, Bank Leumi and others. A “second chance” for people who still have undeclared offshore accounts would be welcome.
We will be monitoring any developments on these issues. Please contact us for more information about bringing your account into tax compliance.
Please also see the following related articles:
The Role of the Attorney in the Voluntary Disclosure Process
After UBS Deal, Does Offshore Banking Have a Future?