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

On August 26, 2010, the Swiss government said it had reviewed approximately 4,450 UBS client accounts and that half of the data had already been handed over to the United States.  Switzerland also said that it was optimistic that the U.S. would definitively withdraw legal action over tax fraud that threatened to bring down UBS,  Switzerland’s largest bank.  The U.S. government agreed in August 2009 to drop tax evasion charges against UBS when Switzerland agreed to coordinate the transfer account information on roughly 4,450 of American UBS clients.  “Both parties are optimistic that the U.S. authorities will receive most of the agreed account information within a reasonable period of time and that the U.S. authorities will definitively withdraw the civil action (John Doe Summons) brought against UBS,” the ministry said.  “The data delivery will be largely concluded by autumn 2010,” Switzerland said.   The deal between UBS and U.S. was in limbo after the Swiss ourt ruled in January that UBS could not disclose account information to the United States.  The uncertainty, however, was removed after Swiss parliament gave its support in June and ruled out a referendum on the issue.

With the news that UBS has begun disclosing account information to the U.S. authorities, it becomes an issue of timing for many U.S. taxpayers. The IRS has always had a policy of voluntary disclosure, which allowed taxpayers to voluntarily come forward and truthfully disclose unreported tax, and in exchange, avoid criminal prosecution.  Such disclosure, however, is deemed timely only if it happens before the IRS has learned about the taxpayer and begun its own investigation of the taxpayer.  Disclosure of the UBS accounts to the U.S. makes it critical for those taxpayers with undisclosed Swiss accounts to decide if they want to make a voluntary disclosure immediately.

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) 2010 Igor S. Drabkin.  All Rights Reserved.

Based on some calls received from potential clients, there is a reason to believe that at this stage the investigation focuses on HSBC accounts in India, Hong Kong and Singapore, but it’s likely that the probe will expand in scope.  A wide-ranging investigation by the IRS and Department of Justice into UBS accounts in Switzerland has gained a lot of publicity in the past year, but the U.S. government has been indicating for a while that they intend to go beyond UBS and Switzerland in its effort to investigate undeclared offshore accounts.  It appears that HSBC is the next step in the U.S. fight against offshore tax evasion.

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) 2010 Igor S. Drabkin.  All Rights Reserved.

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

Just as the April 15th deadline for filing income tax returns approached, the US government announced a bunch of new cases against the taxpayers who were hiding their assets in Swiss bank accounts.  The parade of cases involved at least $145 million hidden in foreign bank accounts, according to the officials.

Seven former clients of UBS AG were charged with filing false tax returns, collectively hiding more than $100 million held offshore in Swiss accounts.  Two of the seven pleaded guilty on April 15, 2010, in Manhattan federal court.  One of the defendants, Jules Robbins, admitted to filing false income tax returns, knowingly failing to mention a UBS account and any income earned on that account, for the tax years 2003 to 2007.

Robbins, a resident of New York who owned and operated companies that distributed watches, was believed to have had as much as $40 million in the account. Robbins agreed to pay a civil penalty of $20.8 million and faces a possible prison sentence of between six months and 12 months following his guilty plea. Another of those charged, New York investment portfolio manager Federico Hernandez, pleaded guilty to similar charges. He faces a possible prison sentence of between 18 months and 24 months and a civil penalty of $4.4 million.  In addition, a U.S. grand jury returned indictments against four other former bank clients, businessmen Ernest Vogliano, Shmuel Sternfeld, Richard Werdiger and a New York woman identified as Sybil Nancy Upham. U.S. prosecutors also charged a disbarred lawyer, Kenneth Heller.

On April 12, 2010, another U.S. client ofUBS AG pleaded guilty to filing false tax forms on income diverted to offshore Swiss accounts.  Harry Abrahamsen pleaded guilty in federal court in New Jersey to failing to file a Report of Foreign Bank and Financial Accounts (FBAR) with respect to accounts valued at $1.3 million.  Abrahamsen admitted he failed to report his account and a second one in his daughter’s name. He had transferred funds through a shell Panamanian company to hide funds from the Internal Revenue Service, according to the government.

Also on April 15, 2010, authorities arrested New York real estate developers Mauricio and Leon Cohen, father and son.  In documents filed in the Southern District of Florida, the government alleges the two evaded taxes and failed to account for $45 million. They are also alleged to have failed to pay taxes on the sale of a New York hotel by using shell companies in tax havens. The government said the Cohens used a large international bank to hide the money.  A source with knowledge of the case identified the bank as HSBC, Europe’s biggest bank.  Interestingly, the name of HSBC was mentioned in the recent news with respect to the stolen data containing names of foreign account holders. This data was offered to, and apparently accepted by, the tax authorities of Germany and France.  It will be interesting to see whether this case is the first of the string of HSBC cases that the US government may pursue, just as they pursued the UBS account holders.

If you have questions about foreign bank accounts or offshore assets, please call Former IRS Attorneys of Holtz, Slavett & Drabkin.  We can assist you to address tax compliance issues related to IRS enforcement of offshore bank accounts. You can contact us at (310) 550-6200.

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

Copyright (c) 2010 Igor S. Drabkin.  All Rights Reserved.

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

A U.S. client of UBS AG pleaded guilty on April 12, 2010, to failing to file FBAR forms with respect to income diverted to offshore Swiss accounts valued at $1.3 million.  The case is the most recent of a slew of actions the government has brought against former clients of Swiss banking giant UBS.  The individuals are accused of stashing assets abroad to escape the eyes of U.S. tax authorities.  UBS client Harry Abrahamsen pleaded guilty in federal court in New Jersey to failing to file a “Report of Foreign Bank and Financial Accounts.”  Abrahamsen admitted he failed to report his account and a second one in his daughter’s name.  He had transferred funds through a shell Panamanian company to hide funds from the Internal Revenue Service, according to the government.  The timing of the plea seems to indicate that the IRS wants to draw attention to taxpayers’ obligation to report assets held offshore before the April 15 tax-filing deadline.

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

It appears that U.S. prosecutors are about to begin a new wave of UBS-related tax evasion cases against individuals, and they plan to do it just before the April 15 tax-filing deadline.  The first case in the new round of prosecutions — apparently intended to create a splash of media attention before tax day — was filed on Tuesday in the U.S. District Court for the Southern District of Florida, where many of the prior UBS-related cases have been prosecuted.  The sources, who declined to comment on the record, said additional cases coming within days will charge individuals with evading U.S. taxes by using accounts at the Swiss bank and will be prosecuted in New York City and elsewhere.

The government has secured eight guilty pleas so far from UBS clients since the bank admitted that it helped taxpayers avoid U.S. taxes.  Last year, UBS paid the government $780 million and gave information about 250 accounts to the U.S. authorities.  Also last year, UBS settled the government’s civil case against it and agreed to hand over 4,450 more client names, though that deal is tied up in legal wrangling in Switzerland.

The Internal Revenue Service and its lawyers want to make a “big splash” to remind people of their duty to report offshore income, one source said. The cases prosecuted so far involved UBS clients with accounts in the range of $10 million and less.  It appears that the new cases would be within that range.  On April 5, 201, IRS Commissioner Doug Shulman said the agency is still working through an additional 15,000 records it received from individuals who took part in an IRS amnesty program for offshore income that ended in October of 2009. The agency is looking for patterns in the records to identify other banks and advisers that helped wealthy individuals avoid taxes.  That area will be “the next wave,” of the investigation, Shulman said, without naming other banks.

Former IRS Attorneys of Holtz, Slavett & Drabkin can assist you to address tax compliance issues related to offshore bank accounts. You can contact us at (310) 550-6200.

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

Copyright (c) 2010 Igor S. Drabkin.  All Rights Reserved.

The next step in the IRS fight against offshore tax evasion may lead to the government’s use of stolen data.  Tax data thefts at HSBC in Switzerland and other offshore banks are leading more whistleblowers to come forward to U.S. tax authorities, Kevin Downing, a top Department of Justice prosecutor said on March 5, 2010.   The whistleblowers, including many former bank employees who worked in information technology, could help the U.S. government look for the next banks that may be helping clients evade taxes and further deter wealthy individuals from sending their money offshore.  “A lot of folks, and they seem to be IT (information technology) people, see what’s happening” in Germany and France and are coming to the U.S. with information”,  Downing said to a group of private and government lawyers at a conference in Washington.  “It’s a cottage industry right now,” he said, declining to name specific banks that could be implicated.

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

UBS agreed last year to pay $780 million and hand over 4,450 client names to settle criminal and civil charges against the bank after it admitted it actively helped U.S. clients evade U.S. tax law.  Recently, we have seen that European governments are willing to use illegally obtained data to go after tax evaders. Germany has announced that it is prepared to pay for data offered by whistleblowers on clients of Swiss banks who may have been evading taxes, even if the information has been obtained illegally.  That announcement came after France announced it had obtained sensitive data belonging to potential tax evaders, some of which belonged to the Swiss private banking operations of HSBC

Tax enforcement authorities around the world are coordinating activities on a greater basis than ever and the U.S. may be the next country to use whatever information it can get to continue its efforts against offshore tax evasion.

If you have questions about compliance with the IRS requirements on foreign assets and financial accounts, please contact us at (310) 550-6200.  Former IRS Attorneys of Holtz, Slavett & Drabkin can assist you with resolving your tax problems.

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

Copyright (c) 2010 Igor S. Drabkin.  All Rights Reserved.

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

IRS Calls Offshore Voluntary Disclosure Program a Success.  What if You Did Not Participate in the Program?

Last week, IRS Commissioner Douglas Shulman announced that about 14,700 taxpayers participated in the agency’s voluntary disclosure program revealing undisclosed accounts and assets in more than 70 countries. Under the IRS amnesty program initiated in March of 2009, taxpayers with hidden foreign financial accounts had until October 15, 2009 to come forward.  As the incentive for coming forward, the taxpayers avoided criminal prosecution and faced reduced penalties.

According to Shulman, participation in the IRS’s amnesty program was “unprecedented” and the final number was nearly double the agency’s estimate in October.  The Commissioner promised to closely monitor the voluntary disclosures in order to learn more about advisors and institutions that facilitated evasion.  Shulman also emphasized that the Service’s investigation into global tax evasion is not limited to UBS or Switzerland.  The Commissioner stated that the IRS will be looking at other foreign banks with a large number of U.S. clients.  The IRS is still in the early stages of a multiyear-effort to put a “serious dent in offshore tax evasion,” Shulman added.

Taxpayers who made a disclosure under the IRS offshore amnesty program, which expired on October 15^th, continue to work their way through the program, clearing the IRS Criminal Investigations unit, and moving towards the determination of their tax liabilities and penalties with the IRS civil examination function.  But what should be done by those who did not come forward before the October 15^th deadline?

In light of the IRS Commissioner’s statements, Service’s overall aggressive position on offshore accounts, and overall tax climate, it is likely that the IRS will continue its enforcement in this area.  Those taxpayers who missed the October 15^th deadline, but still want to protect themselves from potential criminal prosecution, still can use IRS Voluntary Disclosure Practice.  Internal Revenue Manual 9.5.11.9 states that a voluntary disclosure will be considered along with all other factors in the investigation in determining whether criminal prosecution will be recommended.  Although a voluntary disclosure will not automatically guarantee immunity from prosecution, however, as a matter of practice, a voluntary disclosure may result in prosecution not being recommended.

A taxpayer who wants to make a disclosure, must do so before the IRS initiates its own audit or investigation, or obtains information about the taxpayer’s non-compliance.  A voluntary disclosure occurs when it is truthful, timely, complete, and when the taxpayer cooperates with the IRS in determining his or her correct tax liability; and the taxpayer makes good faith arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable. We note that voluntary disclosure practice does not apply to taxpayers with illegal source income.  A disclosure is usually initiated by a taxpayer or taxpayer’s representative contacting the IRS Criminal Investigations unit.

Even if you missed the October 15^th deadline for the IRS offshore amnesty program, making a disclosure now may still achieve the same major goal – prevent criminal prosecution.  Although making a disclosure through the general voluntary disclosure practice outlined in IRM 9.5.11.9 does not provide the same guarantees on the civil penalties, it is still possible to negotiate the penalties with the IRS examiners based on the applicable facts and argue what penalties are applicable to a specific situation.

If you have questions about the voluntary disclosure practice or foreign bank accounts, please contact us at (310) 550-6200.  Former IRS Attorneys of Holtz, Slavett & Drabkin can assist you with resolving your tax problems.

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

Copyright (c) 2009 Igor S. Drabkin.  All Rights Reserved.

The voluntary disclosure initiative that was launched in late March expires on October 15, 2009.  Under the amnesty offer, taxpayers who come forward to declare income from offshore or secret bank accounts get the certainty of reduced fines and general immunity from criminal prosecution.  Under the terms of the program. the taxpayers who come forward must pay back taxes and interest, plus a penalty of 20% of their highest account balance over several years.

Individuals who hid illegally sourced income do not qualify for the amnesty. Those who set up elaborate separate companies to hide their income also do not generally qualify.  Outside of the program, individuals who hide their money offshore face a potential fine of 50% of the highest account balance for each year.  Shulman  warned that those seeking a better deal should act before the deadline.

Based on the Commissioner’s comments and prior IRS announcements, we believe that the government will continue its efforts to crack down on those taxpayers who hide their income or assets offshore.  We remind everyone that the Offshore Voluntary Disclosure Program expires October 15th, and that the window of opportunity to avoid criminal prosecution and huge civil penalties may close.  Former IRS Attorneys of Holtz, Slavett & Drabkin are still available to talk about your foreign bank accounts and eligibility to participate in this voluntary disclosure program.  You can call us at (310) 550-6200.

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

Copyright (c) 2009 Igor S. Drabkin.  All Rights Reserved.

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

Another client of UBS AG, one of the Swiss banking giants, has pleaded guilty to filing a federal income tax return.  According to the U.S. Department of Justice, Roberto Cittadini of Bellevue, WA, accepted responsibility for concealing nearly $2 million in Swiss bank accounts. Cittadini failed to report income from bank accounts under his control at UBS in Switzerland on his individual income tax returns from 2001 through 2003.  He also failed to file a Report of Foreign Bank and Financial Accounts (FBAR) for each of those years. He faces a maximum sentence of three years incarceration and a maximum fine of $250,000, DOJ said, adding that Cittadini agreed to pay a civil FBAR penalty based on 50% of the highest account balance from 2001 to 2007. Cittadini’s guilty plea follows recent guilty pleas in UBS-related cases by individuals in California, Florida, New Jersey and New York.  “Individuals all over the country who are hiding income and assets in offshore accounts would be well-advised to promptly come in and come clean before the government learns about their accounts through other channels,” said John DiCicco, acting assistant attorney general of the Justice Department’s Tax Division. “IRS continues its pursuit of those hiding their income and assets in offshore accounts,” said Eileen Mayer, Chief of IRS’s Criminal Investigation. “We encourage people who have been hiding money offshore to come forward by Oct. 15 to take advantage of the special provisions in our voluntary disclosure effort.”

We remind everyone that the deadline for voluntary disclosing foreign financial accounts to the IRS expires on October 15, 2009.  On September 21, the IRS extended the deadline to October 15th, but specifically stated that this deadline will not be extended.

If you have questions about the Offshore Voluntary Disclosure program or FBARs, please contact Former IRS Attorneys of Holtz, Slavett & Drabkin at (310) 550-6200.

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

Copyright (c) 2009 Igor S. Drabkin.  All Rights Reserved.

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

We would like to remind everyone that the IRS Voluntary Disclosure Program for offshore bank accounts and Foreign Bank Account Report (“FBAR”) is going to expire next week, on September 23, 2009.  U.S. taxpayers (individuals and entities) who have foreign financial accounts are required to file Form 90-22.1 with the IRS every June 30th. Those who fail to file an FBAR may be subject to criminal prosecution and jail term of up to 5 years, as well as a criminal fine of $250,000. In addition, a willful failure to file the FBAR can result in a civil penalty of the greater of $100,000 or 50% of the balance in the account. This penalty can be imposed on an annual basis, and can exceed the balance in the account.

Beginning in March of this year, the IRS has been promoting its offshore voluntary disclosure program. Under the terms of this program, the IRS has agreed not to bring criminal prosecutions of owners of foreign bank accounts if they turn themselves in to the IRS Criminal Investigation Division no later than September 23rd. In addition, those who come forward will have penalties limited. Our firm has been assisting many clients with offshore bank accounts, but the time for voluntary disclosure under this program is expiring.  If you have any questions about the program and its terms, please feel free to call Former IRS Attorneys of Holtz, Slavett & Drabkin at 310-550-6200.

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

Copyright (c) 2009 Igor S. Drabkin.  All Rights Reserved.