This week, many tax attorneys who work with Offshore Voluntary Disclosure cases were surprised by the change of position by the IRS with respect to some taxpayers with accounts at Bank Leumi in Israel. We and other tax practitioners received faxes from the Internal Revenue Service, informing us that some clients who were previously accepted into the IRS amnesty program for undisclosed offshore accounts, have “upon further review” been disqualified. The faxes, signed by John R. Tafur, director of of Global Financial Crimes at the IRS’ Criminal Investigation division, affect dozens of American taxpayers who had undisclosed accounts at Bank Leumi, Israel’s largest bank.
The change of position appears to affect clients with the so called “back-to-back” loans, when account holders obtained loans secured by the secret bank accounts, and the borrowed funds were used in the United States without disclosing the source. This fact situation is similar to the recently announced plea deal in United States v. Sperling.
In a plea deal with prosecutors, Zvi Sperling, an Israeli-born Los Angeles businessman, admitted to hiding $4 million in unreported corporate profits in an account at Israeli “Bank A”–an account he opened around 2001 and owned through a front Island of Nevis corporation. According to the statement of facts in his plea deal, he then tapped into that money through loans from Bank A’s Los Angeles office.