We remind everyone that the IRS has reopened an Offshore Voluntary Disclosure Program, which allows taxpayers with undisclosed foreign accounts to report them and avoid criminal prosecution in exchange for certain penalties.  We encourage those taxpayers who have previously undisclosed foreign accounts to consult with a tax attorney and discuss possible solutions.

Former IRS Trial Attorneys of Holtz, Slavett & Drabkinare 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.

On April 20, 2012, the U.S. Department of Justice and the Internal Revenue Service announced that an Ohio attorney Aristotle “Rick” R. Matsa  was convicted of tax fraud and obstruction of justice related offenses, including witness tampering, making a false statement, conspiracy to obstruct justice, commit perjury, and make false statements.  The conviction followed a five-week trial in Columbus, Ohio.

According to the indictment  and the evidence at trial, Rick Matsa created and operated several nominee entities in order to disguise and conceal his income and assets from the IRS. The false trust return charges relate to filings for at least five separate trusts during the period of 2003 to 2005.   Each of the trusts reported receiving significant amounts of interest income each year, generated from funds held in numerous bank accounts, yet no income tax was reported due as a result of fraudulently claimed deductions for distributions to purported foreign beneficiaries, whereas Matsa was the true beneficiary of the funds.  The evidence at trial also showed that Matsa violated the foreign bank account reporting requirements by failing to disclose his ownership and control over a foreign bank account held in the Netherlands. The evidence at trial was that Rick Matsa maintained more than $300,000 in funds in that undisclosed foreign bank during 2003.

In the statement made by the Assistant Attorney General for the Tax Division, the government said that “those who illegally attempt to hide their income and assets from the IRS through fraudulent trusts or offshore bank accounts will be prosecuted and punished.”   Rick Raven, Acting Chief for the IRS Criminal Investigation said that the IRS will not tolerate abusive tax schemes that use offshore accounts to illegally escape taxes.  Rick Matsa faces a maximum potential sentence of 108 years imprisonment, a fine of up to $3.25 million, and five years of supervised release.

This case is another example of the government’s efforts to crack down on the offshore tax evasion and enforce FBAR rules.  Although not every case where a foreign bank account was not properly reported bears a high risk of criminal prosecution, those type of situations are very sensitive and taxpayers with undeclared foreign bank accounts are encouraged to consult tax attorneys in order to evaluate their options.

Rand Paul Seeks to Block Tax Treaty Change on Swiss Accounts

In another development, Senator Rand Paul is trying to block an amendment to a U.S.-Swiss tax treaty, thus, slowing Switzerland’s handover of data on thousands of Americans with Swiss bank accounts hidden from the IRS.   The protocol, which was negotiated in September 2009, would amend a 1996 treaty and make it more difficult for Switzerland to refuse requests from the IRS for tax information about U.S. customers of Swiss banks.

Under the current treaty, the Swiss can grant a U.S. request seeking data only as it relates to a taxpayer suspected of “tax fraud and the like,” which involves acts such as using false documents or third parties to disguise account ownership. The Swiss won’t hand over data if taxpayers are suspected of tax evasion.  Under the new U.S.-Swiss protocol, Swiss officials would be allowed to hand over account data to the U.S. upon a request  without specifying taxpayers by name.

Paul said that the protocol is too “sweeping” and would threaten protections under the Fourth Amendment to the U.S. Constitution, which guards against unreasonable search and seizure. Paul said he is exercising his privilege to delay a Senate vote.  Paul’s stand could require Democrats who control the Senate to spend a week of floor time before voting to ratify the protocol, which requires assent by two- thirds of the senators.

Former IRS Trial Attorneys of Holtz, Slavett & Drabkinare 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.

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

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

Although FinCEN previously required that the forms must be e-filed from July 1, 2012, FinCEN has announced a general exemption from mandatory electronic filing of FBARs until July 1, 2013. The temporary exemption notwithstanding, FinCEN encouraged FBAR filers to voluntarily take advantage of the benefits of using e-filing and reminded taxpayers that the temporary e-filing exemption does not relieve any person of the obligation to file an FBAR and does not affect the required date by which any given FBAR must be received by Treasury.  The due date for FBAR filing is June 30th of each year.  The report must be received by the Department of Treasury on or before that date.

Our Former IRS Attorneys continue to assist taxpayers with foreign bank account compliance, including FBAR issues and Offshore Voluntary Disclosure Program questions.  For a consultation, please contact us at 310-550-6200

Akio and Fusako Kawashima, were natives and citizens of Japan who have been lawful permanent residents of the U.S. since 1984. In 1997, Mr. Kawashima pleaded guilty to one count of willfully making and subscribing a false tax return in violation of Code Sec. 7206(1). Mrs. Kawashima pleaded guilty to one count of aiding and assisting in the preparation of a false tax return in violation of Code Sec. 7206(2).

Following their convictions, the Immigration and Naturalization Service charged the Kawashimas with being deportable from the U.S. under 8 U. S. C. §1227(a)(2)(A)(iii) as aliens who had been convicted of an aggravated felony.  An aggravated felony is classified as an offense that either: “(i) involves fraud or deceit in which the loss to the victim or victims exceeds $10,000; or (ii) is described in Code Sec. 7201 (relating to tax evasion) in which the revenue loss to the Government exceeds $10,000.  At their deportation hearing, the Kawashimas argued that their convictions under Code Sec. 7206 did not qualify as aggravated felonies.  The Immigration Judge disagreed and ordered removal. They appealed to the Board of Immigration Appeals Board, which affirmed the Immigration Judge’s decision. The Kawashimas then sought review in the Ninth Circuit, which held that convictions for violating Code Sec. 7206(1) and Code Sec. 7206(2) in which the tax loss to the Government exceeds $10,000 constitute aggravated felonies under subsection (M)(i).

The Supreme Court agreed with the Ninth Circuit that convictions under Code Sec. 7206(1) and Code Sec. 7206(2) in which the Government’s revenue loss exceeds $10,000 qualify as aggravated felonies pursuant to Clause (i). It rejected the Kawashimas’ argument that they could not be deported for the commission of an “aggravated felony” because crimes under Code Sec. 7206(1) and Code Sec. 7206(2) do not involve the fraud or deceit required by Clause (i).

Although the words “fraud” and “deceit” are absent from Code Sec. 7206(1) and are not themselves formal elements of the crime, the Supreme Court said that it does not follow that Mr. Kawashima’s offense fell outside Clause (i). Mr. Kawashima’s conviction under Code Sec. 7206(1) involved deceitful conduct in that he knowingly and willfully submitted a tax return that was false as to a material matter. Mrs. Kawashima committed a felony involving deceit by knowingly and willfully assisting her husband’s filing of a materially false return.

This case is a good illustration of how potential tax crimes may affect immigration status of those U.S. taxpayers who do not have a U.S. citizenship. This issue should be considered before making any plea agreement.  Our former IRS trial attorneys can assist with questions related to potential violations of the U.S. tax laws.  To schedule a consultation, please call us at 310-550-6200.

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

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

The faculty panel will explore the following topics:

• The 2012 OVDI: Are its terms sufficiently appealing? What are its penalties? What has changed vs. the 2009 and 2011 disclosure programs?
• The new Form 8938: What should and shouldn’t be disclosed on the FATCA report? Where do FATCA and FBAR overlap and diverge? When could FATCA penalties and withholding duties apply?
• Related developments: How could IRS Fact Sheet FS-2011-13 on U.S. citizens and dual residents who failed to file an FBAR create issues? Might complaints from Canadian banks about FBAR and special attention to accounts in Swiss banks create problems?

The regulations lay out a step-by-step process for U.S. account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, and U.S. withholding agents.

The proposed regulations implement FATCA’s obligations in stages to minimize burdens and costs consistent with achieving the statute’s compliance objectives. The rules and implementation schedule are also adjusted to allow time for resolving local law limitations to which some FFIs may be subject.
FATCA was enacted in 2010 by Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires FFIs to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

In order to avoid being withheld upon under FATCA, a participating FFI will have to enter into an agreement with the IRS to:
• Identify U.S. accounts,
• Report certain information to the IRS regarding U.S. accounts,
• Verify its compliance with its obligations pursuant to the agreement, and
• Ensure that a 30-percent tax on certain payments of U.S. source income is withheld when paid to non-participating FFIs and account holders who are unwilling to provide the required information.
Registration will take place through an online system which will become available by Jan. 1, 2013. FFIs that do not register and enter into an agreement with the IRS will be subject to withholding on certain types of payments relating to U.S. investments.

The proposed regulations can be viewed by here.

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: Gary M. Slavett, J.D., LL.M., Former IRS Attorney 

Under the general IRS policies, in order to obtain an installment agreement to pay taxes, taxpayers are required to disclose their assets and income.  Such disclosure often requires taxpayers to submit volumnious documentation such as bank statements, receipts, paycheck stubs, business financial records, etc.  Based on this information, the IRS follows written policies for analyzing the information to determine the payment amount that the IRS should accept.   Such installment agreement require approval of the supervisor, and in some cases, approval of upper management.  For streamline installment agreements, the IRS policy allows an IRS Revenue Officer (a collection employee of the IRS) the ability to accept an installment agreements without documentation and without supervisory approval.  Previously, the IRS policy allowed streamlined installment agreements for up to 5 years for balances of less than $25,000.

On January 20, 2012, the Internal Revenue Service announced a new policy allowing streamline installment agreements for up to 6 years (72 payments) for balances less than $50,000.

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.

We are proud to announce that all three founding members of our tax law firm — David Holtz, Gary Slavett and Igor Drabkin — were selected as 2012 Southern California Super Lawyers in Tax Law.  Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. The selection process is multi-phased and includes independent research, peer nominations and peer evaluations. Each year, only 5 percent of the lawyers in the state receive this honor.

Congratulations to David, Gary and Igor on this achievement!