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Monthly Archives: June 2012

Alternative FATCA Approach In Compliance Pacts with Switzerland & Japan

Switzerland and Japan have agreed to circumvent their own privacy laws to ease the implementation of the US Foreign Accounts Tax Compliance Act (FATCA) and in exchange the the Treasury Department entered into agreements with Switzerland and Japan to pursue a new alternative approach for compliance with FATCA. The U.S. government does not expect further models regarding FATCA to be proposed.

The Swiss Federal Finance Department said any refusal by Switzerland to implement FATCA would cause it major disadvantages. ‘The prohibitive withholding tax of 30 per cent on all payments from the USA, and the likely consequence that foreign financial institutions would terminate their business relationships with Swiss financial institutions in the medium term, would result in exclusion from the world's largest capital market,’ it said in a statement. Japanese banks also have substantial holdings of US securities.


Most FFIs would like to comply with the Act if they were able to so. However both countries - and many others too - have legislation forbidding banks to disclose exactly the kind of information that FATCA requires them to disclose. In Switzerland these laws are the traditional banking secrecy laws; in Japan they are personal data protection laws.

Both countries announced they had signed deals with the US under which these restrictive laws can be by-passed. Instead of reporting all client data direct to the US IRS, their financial institutions will be allowed to pass only a limited subset of client details to the IRS. The rest of the FATCA-required information will only be available to the IRS via a direct request to the Swiss or Japanese government.

The Swiss Banking Association welcomed this part of the agreement. The arrangements differ significantly from agreements the US Treasury Department is negotiating with Germany, France, Italy, Spain and the UK over FATCA. The difference is that the European proposals exempt the banks from dealing with the IRS at all - they simply fulfill their obligations by handing over agreed client information direct to their own governments, which is then automatically forwarded to the IRS.

As part of the Swiss-US model - which is not yet finalized in detail - Switzerland is also trying to get large classes of its financial institutions entirely exempted from FATCA. Moreover, it does not want its banks to have to report the names of ’recalcitrant’ US clients, or deduct US tax from their payments, or close their accounts. Instead the IRS would have to obtain this information through an intergovernmental administrative assistance request. A simplified method of client identification is also one of the Swiss government's negotiating aims.

The new alternative is a mixed alternative approach of a joint framework with France, Germany, Italy, Spain, and the United Kingdom for intergovernmental information sharing which would allow financial institutions in Switzerland and Japan to report directly to the IRS, with additional information supplied by their governments upon request.

Treasury said it is confident the new model represents a strong alternative to the country-to-country information sharing model announced earlier this year and said both models would boost FATCA implementation and international tax compliance.

As part of the agreement with Switzerland, that country is expected to make a legal change that would require financial institutions that are not otherwise exempt or deemed compliant under current FATCA rules to participate and enter into the agreements with the IRS or register their participation with the IRS to identify U.S. accounts and report information to the IRS.

The Treasury hopes to issue final regulations by this fall.

If you have any questions regarding FATCA, contact the Tax Lawyers at Marini & Associates, P.A. for a FREETax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Freeat 888-8TaxAid (888 882-9243).

Read more at: Tax Times blog

Three Tax Return Preparers Charged with Helping Clients Evade Taxes by Hiding Millions in Secret Accounts at Two Israeli Banks

Defendants Operated Return Preparation Businesses Located in 12 Locations Throughout the U.S., Including California, New York and Maryland David Kalai, Nadav Kalai and David Almog were indicted by a federal grand jury in the Central District of California and charged with conspiring to defraud the United States, the Justice Department and Internal Revenue Service (IRS) announced today. The superseding indictment, which was returned late yesterday, was unsealed following the defendants’ arrests.
According to the superseding indictment, David Kalai and Nadav Kalai were principals of United Revenue Service Inc. (URS), a tax preparation business with 12 offices located throughout the United States. David Kalai worked primarily at URS’s former headquarters in Newport Beach, Calif., and later at URS’s location in Costa Mesa, Calif. Nadav Kalai, who is David Kalai’s son, worked out of URS’s headquarters in Bethesda, Md., as well as URS locations in Newport Beach and Costa Mesa, Calif. David Almog was the branch manager of the New York office of URS and supervised tax return preparers for URS’s East Coast locations.
The superseding indictment alleges that the co-conspirators prepared false individual income tax returns which did not disclose the clients’ foreign financial accounts nor report the income earned from those accounts. In order to conceal the clients’ ownership and control of assets and conceal the clients’ income from the IRS, the co-conspirators incorporated offshore companies in Belize and elsewhere and helped clients open secret bank accounts at the Luxembourg locations of two Israeli banks, Bank A and Bank B. Bank A is a large financial institution headquartered in Tel-Aviv, Israel, with more than 300 branches across 18 countries worldwide. Bank B is a mid-size financial institution also headquartered in Tel-Aviv, with a worldwide presence on four continents.
As further alleged in the superseding indictment, the co-conspirators incorporated offshore companies in Belize and elsewhere to act as named account holders on the secret accounts at the Israeli banks. The co-conspirators then facilitated the transfer of client funds to the secret accounts and prepared and filed tax returns that falsely reported the money sent offshore as a false investment loss or a false business expense. The co-conspirators also failed to disclose the existence of, and the clients’ financial interest in, and authority over, the clients’ secret accounts and caused the clients to fail to file FBARs with the Department of the Treasury.
If convicted, each defendant faces a maximum of five years in prison and a maximum fine of $250,000. The charges contained in the indictment are only allegations. The defendants are presumed innocent and it is the government’s burden to prove guilt beyond a reasonable doubt.

Read more at: Tax Times blog

IRS TARGETS LIECHTENSTEIN BANK

Liechtenstein, an Alpine country of 36,000 people, has told American clients of the principality’s oldest bank that U.S. authorities have requested their account data as they widen a tax-evasion probe.

Accounts at Liechtensteinische Landesbank AG (LLB) that contained at least $500,000 at any time since the beginning of 2004 are covered by the information request, according to a letter dated May 31, 2012 sent to clients by the Liechtenstein’s tax authority. Liechtenstein facilitated the so-called group request from the IRS by amending the tax information exchange agreement with the United States in March 2012. Those affected by the U.S. request for information have the right to appeal, according to the letter.

The amendment that extends the period of applicability back to the tax year 2001 in the administrative assistance law with the U.S. is limited to 12 months from May 1, 2012.

The IRS requests information about accounts with a year end value of at least US$ 500,000 titled in the name of individual US tax payers or owned by non-US entities that have US beneficiaries. The request is limited to account that were opened on or after January 1, 2004 and accounts that were in existence on that date.

In the Liechtenstein group request, U.S. authorities are also targeting lawyers, accountants, financial advisers, asset managers and those responsible for professional “asset protection,” who “conspired with a U.S. taxpayer to commit U.S. crimes or provided assistance,” according to the letter.

LLB account holders have an opportunity to participate in the procedure to ensure that their rights are protected. Account holders need to inform the Liechtenstein tax authorities of their desire to participate in writing within 14 days of the receipt of the letter.

Should the tax authorities determine that the account of an account holder is covered by the IRS request, they have to inform the account holders (and trustees and representatives. The account holder has 14 days after receipt of the notice to challenge the release of banking information in Liechtenstein courts.

Those affected by the U.S. request for information have the right to appeal, according to the letter.

Landesbank declined to comment on whether the handover of account data under the group request would allow the bank to enter a deferred prosecution agreement.

Liechtenstein started to unwind secrecy after data stolen from LGT was used by Germany to prosecute tax evaders in 2008. Former Deutsche Post AG (DPW) Chief Executive Officer Klaus Zumwinkel was convicted of tax evasion and received a two-year suspended prison sentence plus a penalty of 1 million euros ($1.25 million).

Under pressure from the U.S., Germany and France, Liechtenstein said in March 2009 that it would conform with tax standards set out by the Organization for Economic Cooperation and Development to avoid being blacklisted as a tax haven.

For more information go to Businessweek.

Read more at: Tax Times blog

Report Foreign Bank and Financial Account Information by June 30

If you or one of your clients has a bank or other financial account in a foreign country, or has signature authority over such an account, that client may be required to report the account using Form TD F 90-22.1 to the Treasury Department by June 30. Reporting of such accounts may be required, even if they do not generate any taxable income.

Form TD F 90-22.1 is not a tax form and should not be filed with any income tax return. It may be filed either electronically or on paper. However, requests for an extension of time to file this form cannot be granted. Details are on the FBARpage on IRS.gov.

Read more at: Tax Times blog