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LA Man Pleads Guilty to Not Reporting Over $1 Million Held in Israeli Offshore Accounts

According to the DoJ, a Los Angeles man pleaded guilty on August 20, 2018 in U.S. District Court for the Central District of California to willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR), which would have disclosed his foreign bank accounts.
 
According to court documents, Ben Zion Birman, of Los Angeles, California held offshore accounts in Israel at Bank Leumi Le-Israel B.M. from 2006 to 2011. Birman willfully failed to file with the Department of Treasury an FBAR for calendar year 2010, despite having over $1 million in Bank Leumi accounts.  
 
In an effort to further hide his money, Birman instructed Bank Leumi to hold bank mail from delivery to the United States, and obtained access to his offshore funds through the use of “back-to-back” loans, which were designed to enable borrowers to tap their concealed accounts.  These lending arrangements permitted Birman to have funds issued by Leumi’s U.S. branch that were secretly secured by funds in his undeclared accounts in Israel.
 
In December 2014, Bank Leumi entered into a deferred prosecution agreement after the bank admitted to conspiring from at least 2000 until early 2011 to aid and assist U.S. taxpayers to prepare and present false tax returns by hiding income and assets in offshore bank accounts in Israel and other locations around the world.  Under the terms of the deferred prosecution agreement, Bank Leumi paid the United States a total of $270 million and continues to cooperate with respect to civil and criminal tax investigations. (Go to our blog post 148 Offshore Banks & Now Financial Advisors Are Turning Over Your Names To The IRS - What Are Your Waiting For?  to see the extent of the cooperation by these 148 Offshore Banks, including Bank Leumi; who are providing unredacted client files for the U.S. taxpayer-clients who maintained accounts at their Banks or Financial Instruction.)
 
“The Department of Justice is Committed to Vigorously Investigating and Prosecuting Offshore Account Holders who Maintain Undeclared Accounts and Willfully Ignore their
U.S. Reporting and Tax Obligations,”
 
said Principal Deputy Assistant Attorney General Zuckerman.
 
Birman faces a maximum sentence of five (5) years in prison, as well as a period of supervised release, restitution and monetary penalties. Birman's sentencing is scheduled for December 10, 2018. 
 
Do You Have Undeclared Income from an Offshore Bank?
 

 
Is Your Name Being Handed Over to the IRS?
  
Want to Know if the OVDP Program is Right for You?
 
 
Contact the Tax Lawyers at 
Marini & Associates, P.A.  
  
 
for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888) 882-9243

Read more at: Tax Times blog

TCJA'S IRC §965 – Transition Tax Results in Double Tax in Canada (& Other Countries)

According to Moodys Gartner, the transition tax on businesses, introduced by the US Tax Cuts and Jobs Act 2017, may cause some Canadian-resident US individuals with a substantial unexpected US tax liability. They will have to pay the tax without being able to claim it as a tax credit against their Canadian income, unless the Ottawa government decides to allow them relief from this double taxation. 

Generally, under the TCJA every US citizen individual who controls “a non-US corporation (or who owns an interest in a non-US corporation controlled by US persons) has to pay a one-time tax on the retained earnings of those corporations either as a lump-sum or in installments spread out over eight years. This one-time tax is commonly referred to as the Transition Tax, and it can leave those affected Canadian residents with a substantial (and unexpected) US tax liability.
 
The Transition Tax generally works as follows: US citizens and US businesses that own a controlling interest in a foreign corporation,,such as Canadian corporations, are deemed to receive a dividend equal to the corporation’s retained earnings. These shareholders are subject to US tax on the deemed dividends at two different rates – the retained earnings of the corporation reflected by cash assets are subject to a 15.5% effective rate and non-cash assets at an 8% effective rate. When the retained earnings are distributed to the shareholder in the future as a dividend they are not taxed again by the US, though they are subject to tax in Canada.
 
To illustrate the application of the Transition Tax, assume that Ms. A is a US citizen and resident of Canada. She owns 100% of the shares of CanadaCo and thus controls CanadaCo. The only assets of CanadaCo throughout 2017 was cash of US$1m. Ms. A will be deemed to have received a dividend of the US$1m and therefore will subject to a Transition Tax liability in the US of $155,000. Ms. Acan choose to pay the resulting tax liability over 8 years or pay it in a lump sum.
 
In most cases, the Transition Tax will not be available as a tax credit in Canada for two reasons:  
  1. The Transition Tax applies to the shareholder even if the Canadian corporation has not actually declared a dividend meaning that there is no “source” of income against which to credit the Transition Tax.
  2. Under Canadian law, dividends received by a shareholder from a Canadian corporation are classified as Canadian source income and therefore the resulting Canadian tax liability is not eligible to be credited for the US tax paid. The general Canadian principle is that US taxes will be creditable only if the income received is US sourced. 

At the 2018 Society of Trust and Estate Practitioners (STEP) conference held in Toronto, the Canada Revenue Agency (CRA) confirmed that a Canadian resident shareholder’s Canadian tax liability would not be eligible for a credit to offset the Transition Tax paid (see question #12 of the CRA Roundtable Questions & Answers here). Accordingly, this can lead to double taxation for these unfortunate Canadian residents. 
 
The allowance of a domestic tax credit for foreign tax paid on domestic income is specifically found in the Article XXIV of the Canadian/US Tax Treaty which provides relief by deeming the source of some types of income to be foreign, thereby enabling the use of FTCs to offset the Canadian or US. tax otherwise payable.
 
Another possible solution would have been for CanadaCo to pay out an immediate dividend of the same amount in 2017, as the income would be included on the personal returns in both countries in 2017.  

This Law May Have Unintentionally Created an Incredible Burden for Tens of Thousands of US Owned Small Businesses in Canada

This problem may also be faced by US citizens living in other countries besides Canada, since most other industrialized countries will not consider this transition tax nor other types of accrued Subpart F income, as taxable in their country:

  1. The 965 deemed distribution is taxable in the U.S. in 2017, but there is no taxable event in the country of residence and therefore no tax paid in the country of “tax residence”.
  2. There is no credit allowed for the U.S. tax paid on the individual’s 2017 foreign tax return where he/she actually lives.
  3. When the amount of the 2017 IRC §965 inclusion is later distributed to the US shareholder, that distribution is taxed in the foreign jurisdiction a second time.
  4. Therefore, unless the US/Country of Residents tax treaty provides a solution, the §965 inclusion amount will be taxed twice, first by the United States in 2017 and then by the country of residence upon distribution in years after 2017.
Need International Tax Help?

 


Contact the Tax Lawyers at
Marini & Associates, P.A.
 
 
 
 for a FREE Tax Consultation Contact us at 
or Toll Free at 888-8TaxAid (888 882-9243). 

 

 
 
Sources:
 
Moodys Gartner
 
Forbes
 

Read more at: Tax Times blog

8th Circ. Holds that TC Flubbed its 482 Ruling in Medtronic Case

According to Law360, the Eighth Circuit vacated a favorable U.S. Tax Court decision for Medtronic Inc., in its $1.36 billion tax dispute with the IRS, after finding that the judge in the case had not justified the pricing.

The case will return to the Tax Court, which found in January 2017 that the medical equipment company owed only $14 million in an adjustment over its 2005-2006 tax years, stemming from royalty payments to the company's U.S. headquarters from its Puerto Rican subsidiary.

The Eighth Circuit did not reject the Tax Court's decision outright but ordered U.S. Tax Court Judge Kathleen Kerrigan to justify more extensively her determination that Medtronic's overall transfer pricing method was correct.

In a June 2016 order, Kerrigan agreed with Medtronic that the "comparable uncontrolled transactions" method of transfer pricing was the best method for determining the correct royalty rate for the use of intellectual property by Medtronic Puerto Rico Operations Co., a subsidiary that manufactured medical equipment. In that method, the internal transfers of assets are priced according to transactions of similar products between independent companies.

Using that methodology, Kerrigan found that the royalty rate for medical device pulse generators should be 44 percent, while the rate for pacemaker leads should be 22 percent. Based on those figures, Medtronic and the IRS reached an agreement to reduce Medtronic's tax bill to $14 million while the case remained under appeal.

The IRS argued that because the Puerto Rican subsidiary was merely an assembly arm, the comparable uncontrolled transactions method was inappropriate. The agency used the comparable profits method, which takes into account profits from similar firms, to argue that Medtronic's U.S. entities should have received 90 percent of the income from the transaction, which it used to make an overall adjustment of $1.36 billion for the two years.

Writing the lead opinion for the Eighth Circuit, Judge Roger Wollman said the Tax Court didn't explain how it determined that Medtronic's choice of comparable prices, which used pricing from a 1992 settlement with another supplier, was appropriate. Judge Wollman also said the Tax Court didn't account for significant differences in the transactions, including the types of intellectual properties sold and the nature of the contracts.

In addition, the judge found that the Tax Court did not sufficiently analyze how the Puerto Rican subsidiary assumed risk in the transaction, which Medtronic used to justify its royalty agreement.

"In the absence of such a finding, we lack sufficient information to determine whether the Tax Court’s profit allocation was appropriate," Wollman wrote.

 Fellow Eighth Circuit Judge Bobby Shepherd noted in a concurring opinion that the Tax Court did not account for effects that could potentially distort prices in a legal settlement, including that the parties settled to avoid future litigation costs.

Have a Inter-Company Pricing Problem? 
 
Contact the Tax Lawyers at 
Marini& Associates, P.A. 
 
 
for a FREE Tax HELP Contact Us at:

Toll Free at 888-8TaxAid (888) 882-9243

 

Read more at: Tax Times blog

148 Offshore Banks & Now Financial Advisors Are Turning Over Your Names To The IRS – What Are Your Waiting For?

On November 22, 2017 we posted 146 Offshore Banks & Now Financial Advisors Are Turning Over Your Names To The IRS - What Are Your Waiting For? and since then the Government has add NPB Neue Privat Bank AG (effective 7/18/18 ) and Mirelis Holding S.A., formerly known as Mirelis InvestTrust S.A. (effective 7/27/18) to this list bringing the number to 148 Offshore Banks and Foreign Financial Advisors.

The IRS keeps updating its list of foreign banks which are turning over the names of their US Account Holders, who are now subject to a 50% (rather than 27.5%) penalty in the IRS’s Offshore Voluntary Disclosure Program (OVDP). This penalty is based on the highest account balance measured over up to eight years. 

 Under the program, banks are required to:

  • Make a complete disclosure of their cross-border activities;
  • Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
  • Cooperate in treaty requests for account information;
  • Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
  • Agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and
  • Pay appropriate penalties.

These Banks, Financial Instructions and Foreign Financial Advisors  have made substantial efforts to cooperate with the IRS investigation, including by:

  1. facilitating interviews that their Office with employees, including top level executives;
  2. voluntarily producing documents in response to the Office’s requests;
  3. providing, in response to a treaty request, unredacted client files for the U.S. taxpayer-clients who maintained accounts at their Banks or Financial Instruction; and
  4. committing to assist in responding to a treaty request that is expected to result in the production of un-redacted client files for U.S. taxpayer-clients who maintained accounts at these Banks and Financial Instructions and with these Foreign Financial Advisors. 

The complete list of Offshore Banks and Foreign Financial Advisors who are turning over the names of their US Account Holders, who are now subject to a 50% (rather than 27.5%) penalty in the IRS’s Offshore Voluntary Disclosure Program (OVDP) is as of January 31, 2017: 

  1. UBS AG
  2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
  3. Wegelin & Co.
  4. Liechtensteinische Landesbank AG
  5. Zurcher Kantonalbank
  6. swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
  7. CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
  8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
  9. The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
  10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates
  11. Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates (effective 12/19/14)
  12. Bank Leumi le-Israel B.M., The Bank Leumi le-Israel Trust Company Ltd, Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA (effective 12/22/14)
  13. BSI SA (effective 3/30/15)
  14. Vadian Bank AG (effective 5/8/15)
  15. Finter Bank Zurich AG (effective 5/15/15)  
  16. Societe Generale Private Banking (Lugano-Svizzera) SA (effective 5/28/15)
  17. MediBank AG (effective 5/28/15)
  18. LBBW (Schweiz) AG (effective 5/28/15)
  19. Scobag Privatbank AG (effective 5/28/15)  
  20. Rothschild Bank AG (effective 6/3/15)
  21. Banca Credinvest SA (effective 6/3/15)
  22. Societe Generale Private Banking (Suisse) SA (effective 6/9/15)
  23. Berner Kantonalbank AG (effective 6/9/15)
  24. Bank Linth LLB AG (effective 6/19/15)
  25. Bank Sparhafen Zurich AG (effective 6/19/15)
  26. Ersparniskasse Schaffhausen AG (effective 6/26/15)
  27. Privatbank Von Graffenried AG (effective 7/2/15)
  28. Banque Pasche SA (effective 7/9/15)
  29. ARVEST Privatbank AG (effective 7/9/15)
  30. Mercantil Bank (Schweiz) AG (effective 7/16/15)
  31. Banque Cantonale Neuchateloise (effective 7/16/15)
  32. Nidwaldner Kantonalbank (effective 7/16/15)
  33. SB Saanen Bank AG (effective 7/23/15)
  34. Privatbank Bellerive AG (effective 7/23/15)
  35. PKB Privatbank AG (effective 7/30/15)
  36. Falcon Private Bank AG (effective 7/30/15)
  37. Credito Privato Commerciale in liquidazione SA (effective 7/30/15)
  38. Bank EKI Genossenschaft (effective 8/3/15)
  39. Privatbank Reichmuth & Co. (effective 8/6/15)
  40. Banque Cantonale du Jura SA (effective 8/6/15)
  41. Banca Intermobiliare di Investimenti e Gestioni (Suisse) SA (effective 8/6/15)  
  42. bank zweiplus ag (effective 8/20/15)
  43. Banca dello Stato del Cantone Ticino (effective 8/20/15)
  44. Hypothekarbank Lenzburg AG (effective 8/27/15)
  45. Schroder & Co. Bank AG (effective 9/3/15)
  46. Valiant Bank AG (effective 9/10/15)
  47. Bank La Roche & Co AG (effective 9/15/15)
  48. Belize Bank International Limited, Belize Bank Limited, Belize Corporate Services Limited, their predecessors, subsidiaries, and affiliates (effective 9/16/15)
  49. St. Galler Kantonalbank AG (effective 9/17/15)
  50. E. Gutzwiller & Cie, Banquiers (effective 9/17/15)
  51. Migros Bank AG (effective 9/25/15)
  52. Graubundner Katonalbank (effective 9/25/15)
  53. BHF-Bank (Schweiz) AG (effective 10/1/15)
  54. Finacor SA (effective 10/6/15)
  55. Schaffhauser Kantonalbank (effective 10/8/15)
  56. BBVA Suiza S.A. (effective 10/16/15)
  57. Piguet Galland & Cie SA (effective 10/23/15)
  58. Luzerner Kantonalbank AG (effective 10/29/15)
  59. Habib Bank AG Zurich (effective 10/29/15)
  60. Banque Heritage SA (effective 10/29/15)
  61. Hyposwiss Private Bank Genève S.A. (effective 10/29/15)
  62. Banque Bonhôte & Cie SA (effective 11/3/15)
  63. Banque Internationale a Luxembourg (Suisse) SA (effective 11/12/15)
  64. Zuger Kantonalbank (effective 11/12/15)
  65. Standard Chartered Bank (Switzerland) SA, en liquidation (effective 11/13/15)
  66. Maerki Baumann & Co. AG (effective 11/17/15)
  67. BNP Paribas (Suisse) SA (effective 11/19/15)
  68. KBL (Switzerland) Ltd. (effective 11/19/15)
  69. Bank CIC (Switzerland) Ltd. (effective 11/19/15)
  70. Privatbank IHAG Zürich AG (effective 11/24/15)
  71. Deutsche Bank (Suisse) SA (effective 11/24/15)
  72. EFG Bank AG (effective 12/3/15)
  73. EFG Bank European Financial Group SA, Geneva (effective 12/3/15)
  74. Aargauische Kantonalbank (effective 12/8/15)
  75. Cornèr Banca SA (effective 12/10/15)
  76. Bank Coop AG (effective 12/10/15)
  77. Crédit Agricole (Suisse) SA (effective 12/15/15)
  78. Dreyfus Sons & Co Ltd, Banquiers (effective 12/15/15)
  79. Baumann & Cie, Banquiers (effective 12/15/15)
  80. Bordier & Cie Switzerland (effective 12/17/15)
  81. PBZ Verwaltungs AG (effective 12/17/15)
  82. PostFinance AG (effective 12/17/15)
  83. Edmond de Rothschild (Suisse) SA (effective 12/18/15)
  84. Edmond de Rothschild (Lugano) SA (effective 12/18/15)
  85. Bank J. Safra Sarasin AG (effective 12/23/15)
  86. Coutts & Co Ltd (effective 12/23/15)
  87. Gonet & Cie (effective 12/23/15)
  88. Banque Cantonal du Valais (effective 12/23/15)
  89. Banque Cantonale Vaudoise (effective 12/23/15)
  90. Bank Lombard Odier & Co Ltd (effective 12/31/15)
  91. DZ Privatbank (Schweiz) AG (effective 12/31/15)
  92. Union Bancaire Privée , USP SA (effective 1/6/16)
  93. PHZ Privat - und Handelsbank Zürich AG reorganized as Leodan Privatbank AG (effective 1/25/16)
  94. Hyposwiss Privatbank AG reorganized as HSZH Verwaltungs AG (effective 1/27/16)
  95. Bank Julius Baer & Co., Ltd (effective 2/4/16)
  96. Cayman National Securities Ltd. (effective 3/9/16)
  97. Cayman National Trust Co. Ltd. (effective 3/9/16)
  98. Bradley Birkenfeld (effective 11/15/16)
  99. Renzo Gadola (effective 11/15/16)
  100. Martin Lack (effective 11/15/16)
  101. Christos Bagios (effective 11/15/16)
  102. Joshua Vandyk (effective 11/15/16)
  103. Eric St-Cyr (effective 11/15/16)
  104. Patrick Poulin (effective 11/15/16)
  105. Andreas Bachmann (effective 11/15/16)
  106. Josef Dörig (effective 11/15/16)
  107. David Kalai and Nadav Kalai (effective 11/15/16)
  108. David Almog (effective 11/15/16)
  109. Hansruedi Schumacher (effective 11/15/16)
  110. Matthias Rickenbach (effective 11/15/16)
  111. Cem Can (effective 11/15/16)
  112. IPC Management Services, LLC (effective 11/15/16)
  113. IPC Corporate Services Inc. (effective 11/15/16)
  114. IPC Corporate Services LLC (effective 11/15/16)
  115. Titan International Securities, Inc. (effective 11/15/16)
  116. Legacy Global Markets S.A. (effective 11/15/16)
  117. Unicorn International Securities LLC (effective 11/15/16)
  118. Andrew Godfrey (effective 11/15/16)
  119. Michael Little (effective 11/15/16)
  120. Edgar Paltzer (effective 11/15/16)
  121. Peter Amrein (effective 11/15/16)
  122. Daniela Casadei (effective 11/15/16)
  123. Fabio Frazzetto (effective 11/15/16)
  124. Michele Bergantino (effective 11/15/16)
  125. Mario Staggl (effective 11/15/16)
  126. Beda Singenberger (effective 11/15/16)
  127. Gian Gisler (effective 11/15/16)
  128. Felix M. Mathis (effective 11/15/16)
  129. Michael Berlinka (effective 11/15/16)
  130. Urs Frei (effective 11/15/16)
  131. Roger Keller (effective 11/15/16)
  132. Josef Beck (effective 11/15/16)
  133. Hans Thomann (effective 11/15/16)
  134. Stephan Fellmann (effective 11/15/16)
  135. Otto Huppi (effective 11/15/16)
  136. Christof Reist (effective 11/15/16)
  137. Stefan Buck (effective 11/15/16)
  138. Marco Parenti Adami (effective 11/15/16)
  139. Emanuel Agustino (effective 11/15/16)
  140. Roger Schaerer (effective 11/15/16)
  141. Markus Walder (effective 11/15/16)
  142. Susanne D. Rüegg Meier (effective 11/15/16)
  143. Martin Dunki (effective 11/15/16)
  144. Robert Bandfield (effective 11/15/16)
  145. Michael A. Behr (effective 1/25/17)
  146. Prime Partners SA (effective 8/15/17)
  147. NPB Neue Privat Bank AG (effective 7/18/18 )
  148. Mirelis Holding S.A., formerly known as Mirelis InvestTrust S.A. (effective 7/27/18)
Outside of these banks and financial advisors, the norm within the OVDP remains 27.5%. That is far better than prosecution or much bigger civil penalties. Some taxpayers, including taxpayers with accounts at one of the 145 Foreign Banks and Financial Advisors listed above can opt for the easier and less costly Streamlined program. This list does not impact the Streamlined programs because you must be non-willful to qualify. All of this is part of the June 2014 improvements to the OVDP, which sparked new interest in cleaning up offshore accounts.
 
  1. With roughly 145 Foreign Banks and Financial Advisors cooperating with the DOJ & IRS and 
  2. FATCA requiring the entire world to report to the IRS
it is INEVITABLE that this increased disclosure, will result in EVERY AMERICAN eventually being discovered. Banks worldwide want to know if there US clients are compliant with the IRS.
 
 
Within the OVDP, people who Pre-Cleared
Before the various Effective  Dates
are generally Safe From the Higher 50% Penalty.
 
As additional banks are added to the list, only those American taxpayers that request pre-clearance before their bank is listed, will get the 27 1/2% OVDP penalty. The 50% penalty now applies to all taxpayers with accounts at financial institutions or with facilitators which are named, are cooperating or are identified in a court filing such as a John Doe summons.
 
Although the 50% penalty is high, willful civil violations can result in tax, penalties and interest totaling 325% of the highest balance in the account for the  most recent six years period. Recent guidance suggests that the IRS could be more lenient in the future, but the IRS’s definition of leniency can still make the OVDP a very good deal that provides certainty.  
 
 
 
Do You Have Undeclared Income from one of 
these Offshore Banks or 
Financial Advisors?
 
 
Is Your Name Being Handed Over to the IRS?
  
Want to Know if the OVDP Program is Right for You?
 
 
Contact the Tax Lawyers at 
Marini& Associates, P.A.  
 
 
 
for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888) 882-9243

Read more at: Tax Times blog