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IRS issues new information document request (IDR) directives

The IRS’ Large Business & International division has issued a series of directives that streamline its information document request (IDR) process by establishing stricter deadlines and requiring the agency to issue highly specific information requests. A copy of the IRS’ recent announcement is provided here.

Information document requests are an integral part of IRS tax audits. When the agency issues the requests to taxpayers it is supposed to meet with those taxpayers and agree upon the kind of information covered under an IDR and determine an appropriate response date.

 Under prior policy, if an IDR was 15 days late, an IRS agent would follow up with the taxpayer and potentially extend the taxpayer’s deadline. If the IDR was 45 days late, the IRS would meet with the taxpayer again. And if the IDR was 90 days late, the taxpayer would convene with IRS officials and the agency would consider whether it should resort to a summons or formal document request.

IDR requests became ineffective, but under the new directive, taxpayers who miss their deadlines will likely receive IRS summons faster than they would have under the old regime. The IRS will issue a delinquency notice within 10 days of a missed deadline, issue a presummons letter if the taxpayer does not send the information within 10 days of receiving the delinquency notice, and send a summons if the pre-summons letter is ignored.

The last IDR update was issued on February 28, 2014 and gives IRS examiners and specialists more discretion in establishing an initial IDR response date with taxpayers. Companies that go through the IDR process must engage in a thorough risk analysis and study their past examinations, financial statements and other public disclosures so they can speak to the IRS knowledgeably and authoritatively.

Companies should also establish a set of goals before they meet IRS agents in their opening conference and engage in interim reviews with the IRS during the quality examination process.  Typically an IRS agent has an agenda in mind that they want to walk through with the taxpayer.

Cayman Islands Advisors Arrest Suggest U.S. Government Receiving More Information About Offshore Accounts

According to a DOJ Tax Press Release, here, the IRS has arrested a U.S. Citizen and two Canadian citizens who offered enabler services to U.S. taxpayers.  They were caught in a classic IRS sting operation.  Here is a summary of the facts:

Joshua Vandyk, a U.S. citizen, and Eric St-Cyr and Patrick Poulin, Canadian citizens, were indicted for conspiracy to launder monetary instruments, the Department of Justice and Internal Revenue Service (IRS) announced today.  The indictment alleges that Vandyk, St-Cyr and Poulin conspired to conceal and disguise the nature, location, source, ownership and control of property believed to be the proceeds of bank fraud.  The Caribbean-based defendants allegedly assisted undercover law enforcement agents, posing as U.S. clients, in laundering purported criminal proceeds through an offshore structure designed to conceal the true identity of the proceeds’ owners.  Vandyk and St-Cyr invested the laundered funds on the clients’ behalf and represented the funds would not be reported to the U.S. government.

In addition to the conspiracy charge, Vandyk, St-Cyr and Poulin were each charged with two counts of money laundering.

According to the indictment, Vandyk and St-Cyr lived in the Cayman Islands and worked for an investment firm based in the Cayman Islands.  St-Cyr was the founder and head of the investment firm, whose clientele included numerous U.S. citizens.  Poulin, an attorney at a law firm based in Turks and Caicos, worked and resided in Canada and in the Turks and Caicos.  His clientele also included numerous U.S. citizens.   

 According to the indictment, Vandyk, St-Cyr and Poulin solicited U.S. citizens to use their services to hide assets from the U.S. government.  Vandyk and St-Cyr directed the undercover agents posing as U.S. clients to create offshore foundations with the assistance of Poulin and others because they and the investment firm did not want to appear to deal with U.S. clients.  Vandyk and St-Cyr used the offshore entities to move money into the Cayman Islands and used foreign attorneys as intermediaries for such transactions.

 According to the indictment, Poulin established an offshore foundation for the undercover agents posing as U.S. clients and served as a nominal board member in lieu of the clients.  Poulin transferred wire payments from the offshore foundations to the Cayman Islands, where Vandyk and St-Cyr invested those funds outside the United States in the name of the offshore foundation.  The investment firm represented that it would neither disclose the investments or any investment gains to the U.S. government, nor would it provide monthly statements or other investment statements to the clients.  Clients were able to monitor their investments online through the use of anonymous, numeric passcodes.  Upon request from the U.S. client, Vandyk and St-Cyr would liquidate investments and transfer money, through Poulin, back to the United States.  According to Vandyk and St-Cyr, the investment firm would charge clients higher fees to launder criminal proceeds than to assist them in tax evasion.

This past week, Assistant Attorney General Kathryn Keneally of the department’s Tax Division said the sting should serve as a warning about offshore accounts.  “The Cayman case illustrates that we have ways of getting information that people don’t know about,” Assistant Attorney General Kathryn Keneally of the department’s Tax Division said at a news conference in New York. “The days of waiting for a warning sign, such as a letter from a bank, are over.”  Keneally said that the government receives account information from many sources, including whistleblowers hoping for monetary rewards. She declined to comment on whether U.S. officials have the names of Americans who hold accounts in the Caymans or elsewhere in the Caribbean as a result of this probe.

Taxpayers are ineligible to participate in the IRS’s offshore voluntary disclosure program (OVDP) for undeclared offshore accounts if U.S. authorities already have their names. The program imposes steep penalties but offers protection against criminal prosecution.  It is believed that U.S. authorities do have names of account holders in the Caymans.

In March of last year, the indictment says, three undercover IRS agents met with St-Cyr and VanDyk in Miami. One of the agents represented himself as a U.S. citizen who wanted to launder $2 million.  To show how the scheme worked, Poulin, VanDyk and St-Cyr arranged several transfers of $200,000, the indictment alleges. In December, the funds were wired from a Virginia account to an account at Poulin’s law firm in the Turks and Caicos, according to the indictment. The $200,000 was then moved to an account in the Cayman Islands, and most of it was returned to the U.S. in February. Poulin allegedly told the IRS agents that most of his clients were Canadian or American. The entire $2 million was intended to be concealed, in part by using a foundation named Zero Exposure in the Turks and Caicos.

St-Cyr and VanDyk allegedly said that they charged clients more to launder criminal proceeds than to assist in tax evasion, according to the indictment. They also said a foundation was preferred for laundering criminal proceeds, while a trust was sufficient to conceal tax evasion.

Republican Party Rallies Against FATCA: Success Unlikely

The Republican Party is expected to approve a resolution calling for repeal of an Obama administration law that is designed to crack down on offshore tax dodging.

In what would be the party’s first appeal to scrap the law -the Foreign Account Tax Compliance Act (FATCA) – a panel was slated to vote at the Republican National Committee’s (RNC) winter meetings in Washington, likely approving the resolution on Friday, according to party members driving the repeal effort.  The resolution is not a binding on any member of congress and will not likely result in any change in laws.

If adopted, the anti-FATCA resolution would reflect the party’s political priorities for the time being but would not change its presidential campaign platform, according to the RNC.

Approved in 2010 after a tax-avoidance scandal involving a Swiss bank, FATCA requires most foreign banks and investment funds to report to the U.S. Internal Revenue Service information about U.S. customers’ accounts worth $50,000 or more.

Criticized by banks, libertarians and some Americans living abroad as a costly and unneeded government overreach, FATCA is on the books, but its effective date has been delayed repeatedly, with enforcement now set to start on July 1.

Repeal seems unlikely, but more political heat from Republicans could further complicate and delay implementation, said financial industry lobbyists. Republicans are eager to use FATCA as a campaign and fundraising issue against Democrats ahead of the congressional mid-term elections in November. Republican Senator Rand Paul last year introduced legislation to repeal parts of FATCA, citing privacy concerns.

Defending the law, US Treasury Department spokeswoman Erin Donar said in a statement: “FATCA continues to gain momentum and international support as we work with partners around the world to fight offshore tax evasion.”

Our law firm believes that FATCA is here to stay.  Dozens of information sharing agreements with numerous nations have been entered.   We are advising clients to expect aggressive enforcement of US tax laws against taxpayers with undisclosed foreign accounts.

No More Delays for FATCA: Get Ready for Disclosure

The US Foreign Account Tax Compliance Act (FATCA) will definitely come into effect on 1 July this year with no possibility of further delay, according to officials of the US Internal Revenue Service (IRS).

FATCA, which was signed in March 2010, requires foreign banks and other financial institutions to report U.S. account holders who are evading federal taxes, or else risk steep penalties. Foreign financial institutions with U.S. customers who do not enter into reporting agreements with the Internal Revenue Service will face a 30 percent withholding on U.S. income and capital payments, according to the IRS.

In IRS Notice 2013-43 “Revised Timeline and Other Guidance Regarding the Implementation of FATCA”, the IRS indicates that withholding agents generally will be required to begin withholding on payments made after June 30, 2014.

In a report delivered in December 2013 at the annual Public Meeting of the IRS Information Reporting Program Advisory Committee (IRPAC), the IRPAC recommended that the IRS postpone the requirement to impose FATCA withholding until January 1, 2015.  However, senior IRS officials have now signaled that the delays are over.

IRS deputy commissioner Michael Danilack recently told the New York State Bar Association’s Tax Section that there is ‘absolutely no chance’ of further postponements. During a question-and-answer portion of his keynote address to the New York State Bar Association’s Tax Section, an audience member asked whether the effective date will be pushed back. Danilack responded that there will be no further delays to implementation. “There is absolutely no chance that it’s going to slip,” he said. “We think we can make it, all of us.” Danilack, who runs the large business and international division of the Internal Revenue Service, also said that the much-anticipated guidance on FATCA will be published very soon. “We’re extremely close,” he said. “It’s not just soon, it’s imminent.”

Our law office, which represents many taxpayers throughout the U.S. and around the world with undisclosed offshore accounts, believes that FATCA is a game-changer in international tax compliance. FATCA should encourage more U.S. taxpayers with undisclosed offshore accounts to come forward before the government contacts them.

Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.

Canada and US sign FATCA tax deal where banks to share information with IRS

Ottawa and Washington have reached a compromise over how to apply a U.S. law targeting would-be American tax dodgers living in Canada.  Canada has signed an agreement with the U.S. on the automatic sharing of bank information between the two countries as part of efforts to battle tax evasion.

On February 5, 2014, the Canadian government announced that it has signed an intergovernmental agreement (“IGA”) with the US regarding the US Foreign Account Tax Compliance Act (“FATCA”).  FATCA requires U.S. financial institutions to impose a 30 percent withholding tax on payments made to foreign banks and other financial entities that don’t agree to identify and provide information on U.S. account holders. Under the new agreement, Canadian financial institutions will not report any information directly to the Internal Revenue Service. Instead, data would be collected by the Canadian Revenue Agency, which would in turn exchange information with the U.S.

Under the terms of FATCA, Canadian financial institutions would be required to report directly to the US Internal Revenue Service information regarding accounts held by US taxpayers starting on July 1, 2014, the date on which the IGA is proposed to become effective. On that date, without the IGA, obligations to comply with FATCA would have been unilaterally and automatically imposed on Canadian financial institutions and their clients. Draft legislation to implement the agreement has been released for public comment by March 10, 2014.

The U.S. has signed similar intergovernmental agreements, with a number of countries including Germany and France as a July 1 deadline approaches for banks to begin collecting information.

It is estimated that at least 1 million U.S. citizens (and numerous green card holders) reside in Canada, although there is no data available on how many would be affected by the new agreement.  Banks will start collecting information in July and the Canada Revenue Service will begin reporting to the IRS in 2015. The agreement will not require changes to Canadian laws, but will need Parliament’s approval.

Our firm expects thousands of US citizens to come forward to voluntarily disclose unreported accounts to become compliant.

Further details can be found on the following Department of Finance links:
Information Exchange Agreement Signed Between Canada and the United States

US DOJ Tax Asst Attorney General Keneally Reports that One third of Swiss Banks Joining US DOJ Swiss Bank Program

We have previously posted on the U.S. Justice Department’s program offered to Swiss banks and targeted to identifying U.S. taxpayers that have not disclosed foreign accounts to the IRS.  It has now been stated that that one-third of all Swiss banks offered amnesty actually applied to the program.

Kathryn Keneally, Assistant Attorney General for the Tax Division, disclosed at an ABA conference a few days ago that 106 Swiss banks applied to the program. The exact scope of the program had previously been unknown. Swiss banks had until December 31 to apply to the program.

At least 33 Swiss banks announced through late December that they will join some form of the program, including 19 cantonal banks, or regional lenders typically owned by regional governments. They include Union Bancaire Privee, Edmond de Rothschild Group, EFG International AG (EFGN) and Valiant Holding AG. (VATN). Note that these are the public announcements.  Most Swiss banks are not publicly held and thus do not have to publicly announce bad news.  As noted above, the actual number actually joining is 106.  The U.S. amnesty program did not require that a participating bank make a public disclosure about its application status.

At the conference, Attorney Keneally told attendants that the DOJ viewed every bank in the program as a new source of information and would pursue leads whether the funds in the accounts went to other Swiss banks or to banks in other countries. 

A participating Swiss bank has only 120 days from December 31, 2013 (with one potential 60-day extension) before it must begin to turn over account information to the DOJ. Once the DOJ receives information about such an account holder, s/he is no longer eligible for the OVDP.  Hence, U.S. taxpayers who have or had any kind of interest in an unreported Swiss bank account should strongly consider disclosing that account now through the IRS Offshore Voluntary Disclosure Program (OVDP). The OVDP is a voluntary compliance initiative whereby individuals can receive amnesty from criminal prosecution for their previously unreported offshore bank accounts in exchange for filing amended tax returns and FBARs, and paying all back taxes, interest, and penalties.

Swiss Bank Disclosure Round Up

A host of Swiss banks have signaled their readiness to work with U.S. officials in a crackdown on wealthy Americans evading taxes.

Many more are expected to follow in the coming weeks, as Switzerland’s cherished bank secrecy slowly gets wound back.

The program requires the banks to hand over some previously hidden information and face penalties equivalent to up to 50 percent of the assets they managed on behalf of wealthy Americans.

The number that join this scheme is key for larger banks facing criminal investigations, so-called category one banks, in the United States, such as Credit Suisse, Julius Baer and Pictet & Cie.

A failure to win broad cooperation in the program could hold up settlements for the bigger banks, which have seen their talks with U.S. justice officials frozen pending a solution for the wider industry.

Following is a list of banks which have said they will take part in the government-brokered program by grouping themselves into categories depending on whether they had U.S. clients.


Swiss banks in this group have a reason to believe they may have committed tax offenses, and are eligible for a non-prosecution agreement if they come clean and face fines. Banks which have said they will do so include:

EFG International

Banque Privee Edmond de Rothschild

St. Galler Kantonalbank

Banque cantonale de Geneve

Berner Kantonalbank

Banque Cantonale Vaudoise

Graubuendner Kantonalbank

Banque cantonale du Jura

Zuger Kantonalbank

Luzerner Kantonalbank


Linth Bank

Coop Bank

Walliser Kantonalbank

Hypothekarbank Lenzburg

Unlisted banks in category 2

Union Bancaire Privee (UBP)

Rothschild Bank

Lombard Odier


These Swiss banks have not engaged in criminal conduct or are deemed “compliant” under U.S. tax rules. They would receive a non-target letter and not face fines. Banks which have said they will do so include:


Bank am Bellevue

Basellandschaftliche Kantonalbank

Valartis said it will decide at a later time whether to register for Category 3 or not to participate in the program at all.

More Swiss Banks Agree to Cooperate with the IRS

Lombard Odier & Cie and VP Bank (Switzerland) last week became the latest Swiss banks to say they would work with U.S. officials in a crackdown on lenders suspected of helping wealthy Americans evade taxes through hidden offshore accounts.

Unlisted Geneva-based Lombard Odier with in client assets is the biggest privately-held firm so far to say publicly it will take part in a Swiss government-brokered scheme to make amends for aiding tax evasion.

The deal between the United States and Switzerland is part of a U.S. drive to lift the veil on bank secrecy in the Alpine country, the world’s largest offshore finance center with more than $2 trillion in assets.

Under the deal, Swiss banks have until the end of the year to sign up to the program, which requires the firms to hand out some previously hidden information and face penalties of up to 50 percent of assets they managed on behalf of U.S. clients.

A host of smaller listed Swiss banks have come forward – now including Liechtenstein-based VP Bank – but the majority of Switzerland’s private banks are unlisted and often family-run firms such as Lombard Odier.

Swiss banks that sign up select which category they fall under within the scheme. Those putting themselves in the second category have reason to believe they may have committed tax offences, and are eligible for a non-prosecution agreement if they come clean and face fines.

So-called category 3 banks have not engaged in criminal conduct or are deemed “compliant” under U.S. tax rules. They would receive a “non-target letter”, or a promise from prosecutors they won’t be charged later, and will not have to pay fines.

“After a detailed analysis of the program and its implications, the Bank has decided to take the prudent step of signing up to category 2 within the required deadline of 31 December 2013. It reserves the right to join category 3 which opens in the summer of 2014,” Lombard Odier said in a statement.

VP Bank, which had client assets under management of 28.8 billion Swiss francs at the end of June, also said its Swiss subsidiary was joining in category 2 but might switch to category 3 later.

U.S. Signs FATCA Pacts with Malta, Netherlands, Bermuda, Jersey, Guernsey and Isle of Man

Last week, the U.S. signed six more intergovernmental agreements with a half dozen jurisdictions, including several traditional offshore tax havens, to implement the Foreign Account Tax Compliance Act, or FATCA.

Over the past week, the U.S. Treasury Department has signed intergovernmental agreements to implement FATCA with Malta, the Netherlands, the Islands of Bermuda, and three United Kingdom Crown Dependencies: JerseyGuernsey and the Isle of Man.

FATCA was included as part of the HIRE Act of 2010 in an effort to combat offshore tax evasion. It requires foreign financial institutions to report on the holdings of U.S. taxpayers to the Internal Revenue Service or face heavy penalties. The law has sparked controversy abroad, with foreign banks and U.S. expatriates and dual citizens pointing to violations of other countries’ banking secrecy laws and violations of financial confidentiality. In an effort to address such concerns, the Treasury Department and the IRS have been signing intergovernmental agreements with other countries, while delaying some

With the most recent agreements, the U.S. has signed 18 FATCA intergovernmental agreements, has 11 agreements in substance, and is engaged in related discussions with many other jurisdictions, according to the Treasury Department.

“FATCA continues to gather momentum as we work with partners worldwide to combat offshore tax evasion,” said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack in a statement Thursday.  “This large number of signings in one week alone sends a strong signal to tax evaders everywhere: international support for FATCA is growing.”

FATCA seeks to obtain information on accounts held by U.S. taxpayers in other countries.  It requires U.S. financial institutions to withhold a portion of certain payments made to foreign financial institutions who do not agree to identify and report information on U.S. account holders.  Governments have the option of permitting their FFIs to enter into agreements directly with the IRS to comply with FATCA under U.S. Treasury Regulations or to implement FATCA by entering into one of two alternative Model IGAs with the United States.

On Thursday, Bermuda signed a Model 2 agreement, meaning that Bermuda will direct and legally enable FFIs in Bermuda to register with the IRS and report the information required by FATCA about consenting U.S. accounts directly to the IRS.  This requirement is supplemented by government-to-government exchange of information regarding certain pre-existing non-consenting accounts on request.

Malta, the Netherlands, and each of the Crown Dependencies that signed this week entered into Model 1A agreements.  Under these agreements, FFIs will report the information required under FATCA about U.S. accounts to their home governments, which in turn will report the information to the IRS.  These agreements are reciprocal, meaning that the United States will also provide similar tax information to these governments regarding individuals and entities from their jurisdictions with accounts in the United States.

In addition to these FATCA agreements, protocols to the existing tax information exchange agreements with Jersey, Guernsey, and the Isle of Man were also signed. Updates and further information on FATCA can be found by visiting the Treasury FATCA page here.

The IRS has also been updating information recently on FATCA. On Wednesday, the IRS posted the FATCA FFI List Resources and Support Information Web page to its FATCA Web site.  In addition, the FATCA FFI List Frequently Asked Questions (FAQs) have been posted to the same IRS FATCA Web site.

The IRS also released Announcement 2014-1 last Friday, providing an update on FATCA financial institution registration information, to remind financial institutions creating accounts and entering registration information on the IRS FATCA registration Web site about certain steps that they will need to take on or after Jan. 1, 2014. The announcement also provides general information concerning the anticipated publication dates of final qualified intermediary, withholding foreign partnership and withholding foreign trust agreements.

Our firm has several clients with accounts in these jurisdictions.  We counseled them into the OVDP program and they fortunately and successfully are all in the OVDP program, otherwise the new FATCA agreements would have eventually led to the discovery of their offshore accounts.