Igor S. Drabkin, Former IRS Attorney

The U.S. Government is stepping up its efforts against secret foreign accounts and offshore tax fraud.  On February 2, 2012, the Department of Justice announced that Wegelin & Co., the oldest Swiss private bank, was indicted for conspiring with U.S. taxpayers and others to hide more than $1.2 billion in secret accounts and the income these accounts generated from the Internal Revenue Service .   This is the first time an overseas bank has been charged by the United States for facilitating tax fraud by U.S. taxpayers.  The U.S. government also seized more than $16 million from Wegelin’s correspondent bank account in the United States, in accordance with a civil forfeiture complaint and seizure warrant. Wegelin is charged in a superseding indictment with Michael Berlinka, Urs Frei and Roger Keller, three private client advisers at the bank who were previously charged with the same conspiracy.

The U.S. government accuses Wegelin, acting through Berlinka, Frei, Keller and/or others, with the following:

·          Opening and servicing undeclared accounts for U.S. taxpayer-clients in the names of sham corporations and foundations formed under the laws of Liechtenstein, Panama, Hong Kong and other jurisdictions for the purpose of concealing some clients’ identities from the IRS;

·          Accepting, as part of Wegelin’s client files, documents that falsely declared that the sham entities were the beneficial owners of certain accounts, when in fact the accounts were owned by U.S. taxpayers;

·          Permitting certain U.S. taxpayer-clients to open and maintain undeclared accounts at Wegelin using code names and numbers to minimize references to the actual names of the U.S. taxpayers on Swiss bank documents;

·          Ensuring that account statements and other mail for U.S. taxpayer-clients were not mailed to them in the United States;

·          Communicating with some U.S. taxpayer-clients using their personal email accounts to reduce the risk of detection by law enforcement; and

·          Issuing checks drawn on, and executing wire transfers through, its U.S. correspondent bank account for the benefit of U.S. taxpayers with undeclared accounts at Wegelin and at least two other Swiss banks.   In doing so, the bank sometimes separated the transactions into batches of checks or multiple wire transfers in amounts that were less than $10,000 to reduce the risk that the IRS would detect the undeclared accounts.

The case was filed in the U.S. District Court for the Southern District of New York.  Wegelin is faces a fine of the greatest of $500,000, or twice the gross gain derived from the offense or twice the gross loss to the victims.   Berlinka, Frei, and Kelle face a maximum term of five years in prison, a maximum term of three years of supervised release and a fine of the greatest of $250,000, or twice the gross gain derived from the offense or twice the gross loss to the victims.

In another recent new development, the Swiss Finance Ministry said on January 31st that it handed over a few days ago secret banking data related to tax investigations to the U.S.  Approximately 20,000 pages of encrypted data on Swiss banking practices, clientele and employees in the U.S.   The key to unlocking the encrypted information, however, remains in the hands of the Swiss, said Eveline Widmer-Schlumpf, the Swiss finance minister. The Swiss insist that in order to obtain unencrypted data, they would like to reach a comprehensive bilateral solution with the U.S. and ensure that before the data is provided two conditions are met: (1) a request must be made pursuant to double taxation treaties; and (2) the individual named must have violated Swiss law.

With the government increasing its efforts to fight offshore tax evasion, taxpayers with foreign bank accounts are advised to consult with knowledgeable tax counsel.  Former IRS Trial Attorneys of Holtz, Slavett & Drabkin are available to assist you with the issues related to offshore assets and foreign accounts.  To arrange for a consultations, please contact us at (310) 550-6200.

Author: Igor S. Drabkin, J.D., Former IRS Attorney.

Copyright (c) 2012 Igor S. Drabkin.  All Rights Reserved.

Igor S. Drabkin, Former IRS Attorney

As reported by Reuters and many other news agencies, Credit Suisse AG,  the second largest bank of Switzerland, has notified some of its U.S. clients that it will disclose their identities and account details to the Internal Revenue Service. In a letter dated November 2nd, Credit Suisse says the IRS made a formal request for the information through the Swiss Federal Tax Administration (SFTA). The letter states that the SFTA has issued an order directing the bank to supply the account information. According to Reuters, who obtained a copy of the letter, it says: “This order is immediately executable and Credit Suisse, as an information holder, has no right to appeal”.

The IRS request apparently involves accounts maintained at any time from January 1, 2002, through December 31, 2010.  Recipients of the letter are offered two options: either give a written permission for the data to be handed over to Swiss tax authorities, which will then turn it over to the IRS; or hire an attorney in Switzerland to contest the request.  The number of U.S. clients due to receive the letter is uncertain.  Credit Suisse declined to comment on the matter.

The IRS request for information follows an investigation into claims that Credit Suisse bankers helped dozens of American clients evade taxes. Two current and three former Credit Suisse bankers were indicted earlier this year.  This follows the much-publicized 2009 case against UBS, which ended in the bank paying $780 million to settle federal allegations that it helped tens of thousands of American clients hide assets from the IRS.  UBS also agreed to disclose the names of about 4,500 U.S. account holders to the IRS.

As we wrote recently, the Swiss government is attempting to reach a global agreement with the U.S. that would cover all Swiss banks.

If you have or had your accounts at Credit Suisse AG, or other foreign banks, Former IRS Tax Attorneys of Holtz, Slavett & Drabkin can assist you with this issue.  We can be reached at (310) 550-6200.

Author: Igor S. Drabkin, J.D., Former IRS Attorney.

Copyright (c) 2011 Igor S. Drabkin.  All Rights Reserved.

Igor S. Drabkin, Former IRS Attorney

As posted by several new sources yesterday, this Swiss government has apparently proposed a multibillion-dollar settlement with the U.S. in response to the allegations that it helped American taxpayers avoid billions of dollars in U.S. taxes.  The proposed civil settlement, made recently by Swiss authorities to the IRS, would cover all banks in Switzerland (about 355) and could reach more than $10 billion.  The deal would supposedly cover those 11 banks, which are currently under criminal investigation by the Department of Justice (including Credit Suisse AG and HSBC).

It is believed that the settlement  proposal has been met with skepticism from the Justice Department, which wants to exclude those 11 or so banks from a civil settlement.  The IRS, which referred the names of the 11 banks to the Justice Department, is conducting a civil investigation of many other Swiss banks.

Furthermore, the Swiss settlement proposes to pay a large fine without turning over any client names or client data, however, the IRS and the Justice Department are likely to oppose any deal that involves only money and does not provide for a turnover of client information.

In September of 2011, the IRS mailed a one-page questionnaire, containing questions about contacts with offshore banks, to many taxpayers who already entered IRS Voluntary Disclosure programs related to offshore accounts.  The questionnaire has 10 questions regarding  undeclared offshore accounts and taxpayers’ interaction with foreign financials institutions.  It is possible that this is one of the first steps towards new John Doe summons.

We will continue to monitor developments and news related to any possible deal between the Swiss government and the U.S.  Holtz, Slavett & Drabkin attorneys can assist you with questions about foreign bank accounts and compliance with the IRS requirements.

Author: Igor S. Drabkin, J.D., Former IRS Attorney.

Copyright (c) 2011 Igor S. Drabkin.  All Rights Reserved.

Igor S. Drabkin, Former IRS Attorney

With the deadline to participate in the 2011 Offshore Voluntary Disclosure Initiative (OVDI) approaching, the U.S. government decided to prosecute a taxpayer who made a so-called “quiet disclosure” of his offshore account at HSBC.  The U.S. filed a criminal information in the U.S. District Court for the District of Massachussets against Michael Schiavo, a Boston banker.

According to the information filed in court, Mr. Schiavo failed to report his interest in several offshore accounts for the tax years 2003 through 2008.   After the news and widespread coverage of the UBS case and its decision to provide account information to the U.S., Mr. Schiavo decided to amend his tax returns and submitted Foreign Bank Account Returns (FBARs) to the IRS and Department of Treasury. A situation whre the taxpayer files amended returns and pays any related tax and interest for previously unreported offshore income, but without first notifying the IRS or participating in a voluntary disclosure program is known as “quiet disclosure.  Mr. Schiavo decided to do a quiet disclosure of his offshore account rather than participate in the voluntary disclosure program.

The government alleges that he hid more than $90,000 from a partnership that invested in medical devices, in an undeclared account at HSBC Bank Bermuda.  According to the information, Mr. Schiavo’s partner, Peter Schober, transferred the funds to HSBC in 2006 from a UBS account in Switzerland, which was also undisclosed.

The court document claims that Mr. Schiavo willfully failed to file FBARs with the Department of Treasury for the tax years 2003 to 2008. Additionally, his tax returns failed to include his interest in a foreign financial account or the income from partnership. The government claims that the failure to include such income deprived the IRS of $40,624.

On October 6, 2009, Mr.  Schiavo made a quiet disclosure by preparing and filing FBARs and amended tax returns for the 2003 through 2008 tax years. He did not participate in the 2009 Offshore Voluntary Disclosure Program, although his disclosure was made nine days prior to the end of the amnesty period. In his October 6 disclosure, he revealed to the IRS that he had an interest in an HSBC account in Bermuda, but he failed to report his income on his 2006 tax return from his partnership.   Later, Mr. Schiavo prepared and executed a second amended return for the 2006 year where he reported the income he earned from his partnership that was ultimately deposited into his HSBC account in Bermuda.

The Schiavo case leaves open a possibility that the government can prosecute quiet disclosure cases, especially if the disclosure is incomplete or misleading.  It is possible that had Mr.  Schiavo fully disclosed his income in his first amended return in his quiet disclosure, the government would not prosecute him.  However, this case still raises some serious question about doing a disclosure quietly.  What is certain, that a disclosure must be complete and truthful.

The 2011 OVDI program provides for a significant penalty of 25% of the value of the offshore accounts, and seemingly applies the penalty regardless of whether the taxpayer willfully evaded tax obligations or not.  For many taxpayers, it poses a question of whether the OVDI penalty is excessive.  Those taxpayers who seek the IRS to consider the willfulness and reasonable cause arguments, would need to opt out of the program, leaving all the penalties and all the years on the table.   For those taxpayers who consider whether to participate in the 2011 OVDI program, or to make a quiet disclosure, the  Schiavo case brings another issue to consider and think about.

Former IRS Tax Attorneys at Holtz Slavett & Drabkin are available to assist you with your offshore account tax issues and may be reached at (310) 550-6200.

Author: Igor S. Drabkin, J.D., Former IRS Attorney.

Copyright (c) 2011 Igor S. Drabkin.  All Rights Reserved.

The government filed a petition with the court to allow the IRS to serve what is known as a “John Doe” summons on the bank.   John Doe summons are used by the IRS to obtain information about possible tax fraud by those whose identities are unknown.   If approved, the John Doe summons would direct HSBC USA to produce records identifying U.S. taxpayers with accounts at HSBC India.  In court documents, the Justice

Igor S. Drabkin, Former IRS Attorney

Department alleged that HSBC bankers solicited prospective clients, promising that, as a foreign bank, HSBC’s India wouldn’t disclose their accounts to the Internal Revenue Service.  According to the government, thousands of U.S. taxpayers have opened bank accounts with HSBC India since 2002.

This move by the IRS and Department of Justice opens up a new chapter in the U.S. crackdown on tax evasion.  Previous cases focused on Americans with Swiss bank accounts, the most notable of which was the John Doe summons case against UBS.  In February, the IRS announced a new amnesty initiative for the taxpayers with hidden offshore accounts.  The program offers taxpayers who voluntarily come forward protection from criminal prosecution for tax evasion.  The program will require individuals to pay a penalty of 25% of the amount in their foreign bank accounts in the year with the highest aggregate account balance over eight years from 2003 through 2010.   The taxpayers will also be required to amend their tax returns, and pay back taxes and interest, as well as accuracy-related penalties.  Under the regular FBAR rules, a taxpayer could pay up to 50% of the highest amount in each account for each year over six years.

Former IRS Tax Attorneys at Holtz Slavett & Drabkin are available to assist you with your offshore account tax issues and may be reached at (310) 550-6200.

Author: Igor S. Drabkin, J.D., Former IRS Attorney.

Copyright (c) 2011 Igor S. Drabkin.  All Rights Reserved.

An indictment identified the four bankers as Marco Parenti Adami of Italy, Emanuel Agustino, Michele Bergantino and Roger Schaerer (all three of Switzerland).  It was not clear if any were under arrest or even in the U.S.

The indictment said they worked for “one of the biggest banks in Switzerland and largest wealth managers in the world. ” Although the document did not specifically identify the bank, calling it only “international bank”, internet research of the names of the four indicted bankers indicated links with Credit Suisse.  A Credit Suisse spokesman in New York provided a short statement in response to the indictment: “We are cooperating with the authorities in their investigation of these individuals.  Credit Suisse is not a target of the investigation.”

According to the indictment, the defendants were in a conspiracy to help U.S. citizens avoid income taxes.  The charges indicated that the bank serviced unreported foreign accounts at its New York office, and told account-holders to travel when necessary to Switzerland and the Bahamas. Other schemes mentioned in the indictment included limiting withdrawals to less than the mandatory reporting level of $10,000,  using charge and debit cards from other countries, and keeping records overseas.  The indictment also said that the indicted defendants “discouraged U.S. customers from disclosing their undeclared accounts through the Volunteer Disclosure Program” and then  helped to move assets to other financial institutions in Switzerland and Hong Kong.  Based on the indictment, much of the alleged tax evasion took place in Southern California, but the indictment also mentioned New York, New Jersey, Virginia, Pittsburgh and Miami.

In a press release, the full text of which you can read here, the U.S. Justice Department said the maximum punishment each defendant faced is five years in prison and a $250,000 fine.

On February 8, 2011, the IRS announced a new Offshore Voluntary Disclosure Initiative for taxpayers with undisclosed offshore accounts.  Pursuant to the terms of the program, those taxpayers who voluntarily come forward, disclose their hidden foreign accounts and cooperate with the IRS, will avoid criminal prosecution and pay reduced penalties.

If you have questions about tax issues related to foreign bank accounts, or the IRS Voluntary Disclosure Initiative, please contact Former IRS Tax Attorneys at Holtz Slavett & Drabkin at (310) 550-6200.

Author: Igor S. Drabkin, J.D., Former IRS Attorney.

Copyright (c) 2011 Igor S. Drabkin.  All Rights Reserved.

The IRS also published the forms and documents to be used in the disclosure process.  You can find the documents here: 2011 Offshore Voluntary Disclosure Initiative Documents and Forms.

Former IRS Attorneys at Holtz, Slavett & Drabkin are available to discuss the 2011 Offshore Voluntary Disclosure Initiative and issues related to foreign bank accounts. We can be reached at (310) 550-6200.

Author: Igor S. Drabkin, J.D., Former IRS Attorney.

Copyright (c) 2011 Igor S. Drabkin.  All Rights Reserved.

Igor S. Drabkin, Former IRS Attorney

On Tuesday, February 8, 2011, the Internal Revenue Service announced a new amnesty program for taxpayers with hidden offshore bank accounts.  The new Voluntary Disclosure Initiative is intended to bring people with unreported offshore income and undisclosed offshore accounts back into compliance.

This new program, called the 2011 Offshore Voluntary Disclosure Initiative (OVDI), follows the 2009 Offshore Voluntary Disclosure Program, which was considered a success by the IRS and tax community, bringing over 15,000 taxpayers into compliance and generating over $400 million for the government.   The terms of the new initiative are tougher, meaning that people who did not come in through the 2009 voluntary disclosure program will not be rewarded for waiting.  The 2011 initiative also adds new features.

The program makes clear that taxpayers who voluntarily come forward will not to face prosecution for tax evasion.  The program will require individuals to pay a penalty of 25% of the amount in their foreign bank accounts in the year with the highest aggregate account balance over eight years from 2003 through 2010.  Under the regularly applicable penalties, a taxpayer could pay up to 50% of the highest amount in each account for each year over six years.  The taxpayers will also be required to amend their tax returns, and pay back taxes and interest for up to eight years, as well as delinquency and accuracy-related penalties.

Some taxpayers may be eligible for reduced penalties of 5% or 12.5%.  People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the 2011 initiative will qualify for the 12.5% penalty.  In certain circumstances, such as inherited offshore accounts, taxpayers may qualify for the 5% penalty.

The deadline for participating in the new Voluntary Disclosure Program is August 31, 2011.

You can read the full text of the IRS announcement here: http://www.irs.gov/newsroom/article/0,,id=235695,00.html

Former IRS Tax Attorneys at Holtz Slavett & Drabkin are available to assist you with your offshore account tax issues and may be reached at (310) 550-6200.

Author: Igor S. Drabkin, J.D., Former IRS Attorney.

Copyright (c) 2011 Igor S. Drabkin.  All Rights Reserved.

Former IRS Tax Attorneys at Holtz Slavett & Drabkin are available to assist you with your offshore account tax issues and may be reached at (310) 550-6200.

Author: Igor S. Drabkin, J.D., Former IRS Attorney.

Copyright (c) 2011 Igor S. Drabkin.  All Rights Reserved.

Igor S. Drabkin, Former IRS Attorney

U.S. prosecutors have charged an ex-UBS banker with tax fraud for encouraging his wealthy American clients not to disclose to U.S. tax authorities that they had money in offshore accounts.  Renzo Gadola, an investment adviser based in Switzerland, faces charges of conspiracy to defraud the United States, the U.S. attorney’s office in Miami said in a statement on December 15, 2010.  Gadola, a Swiss citizen who worked at UBS AG from 1995 to 2008, was arrested on November 8, 2010, two days after meeting a client at a Miami hotel and attempting to persuade the person from disclosing offshore account information to U.S. officials.  In court documents filed in the District Court, prosecutors charged that Gadola worked with another unidentified former UBS banker to hide clients’ money from U.S. tax authorities by shifting their undeclared funds from UBS accounts to Switzerland-based Basler Kantonalbank.  The unnamed ex-UBS bank executive was described by prosecutors as a former executive director for UBS’s North America International business who left the bank seven years ago taking 150 clients with him to set up an independent investment group in Switzerland.

In the Gadola case, prosecutors said the unidentified Swiss banker had received some $445,000 from a Mississippi client who had kept the money in a safe deposit box before transferring it first to UBS and then to a Basler Kantonalbank account. The client later told the bankers he wanted to declare the money under a voluntary disclosure program launched by the IRS, but was advised against it because his account was too small.  During the November meeting, according to prosecutors, Gadola told the client “you have nothing to worry about” because there was “no paper trail” tied to his Basler Kantonalbank account since the money had been withdrawn and placed in a safe in his office.

The case comes after U.S. authorities recently ended a probe into UBS, which was charged by federal prosecutors with helping roughly 17,000 clients with $20 billion of assets hide their accounts from the Internal Revenue Service. As part of a settlement, Zurich-based UBS paid $780 million, handed over names of more than 250 client accounts, agreed to disclose names of additional 4,450 clients, and ended its U.S. cross-border banking business.