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A solution in a tough tax season: the IRS Streamlined Offshore Procedures

In the midst of tough tax season, many U.S taxpayers are unfortunately surprised to discover that they have a U.S. tax reporting obligation on financial accounts or assets held overseas. Once they discover their tax and reporting obligation, there are a number of programs through which they can become compliant.

One option, if the taxpayers meet the requirements, is to file under the Streamlined Domestic Offshore Procedures (SDOP) or the Streamlined Foreign Offshore Procedures (SFOP). Our firm has recently received many inquiries regarding these new IRS Streamlined Offshore Procedures. These programs require U.S. taxpayers to certify that their prior non-compliant conduct was non-willful.

Eligibility

To be eligible for the streamlined offshore procedures for U.S. residents, taxpayers (1) must fail to meet the nonresidency requirement described below (if the taxpayer filed a joint return, one or both of the spouses must fail to meet the requirement); (2) have previously filed a U.S. tax return (if required to file) for each of the most recent three years; (3) have failed to report gross income from a foreign financial asset and pay tax, and may have also failed to file a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) (previously Form TD F 90-22.1) and/or one or more international information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) for the foreign financial asset; and (4) these failures resulted from non-willful conduct.

To be eligible for the streamlined offshore program for taxpayers residing outside the United States, taxpayers must (1) meet one of the nonresidency requirements described below (for joint return filers, both spouses must meet this), and (2) have failed to report the income from a foreign financial asset and pay tax, and may also have failed to file an FBAR, and those failures resulted from non-willful conduct.

Individual U.S. citizens or lawful permanent residents, or estates of U.S. citizens or lawful permanent residents, are nonresidents if, in any one or more of the most recent three years for which the U.S. tax return due date (or properly extended due date) has passed, the individual did not have a U.S. abode and the individual was physically outside the United States for at least 330 full days. Individuals who are not U.S. citizens or lawful permanent residents, or estates of individuals who were not U.S. citizens or lawful permanent residents, meet the nonresidency requirement if, in any one or more of the last three years for which the U.S. tax return due date (or properly extended due date) has passed, the individuals did not meet the Sec. 7701(b)(3) substantial-presence test.

Non-Willful Conduct Certification

In order for taxpayers to qualify for such preferable penalty treatment, they must meet several criteria. One critical criterion is that taxpayers must establish – to the satisfaction of the IRS – that their non-compliant behavior was non-willful. Non-willful conduct is defined as “negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”

Depending on where the U.S. taxpayer resides, certification of non-willful behavior may be made on one of the following forms initially released by the IRS in August 2014:

For U.S. taxpayers residing in the U.S. – IRS Form 14654: Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures.

For U.S. taxpayers residing Abroad – IRS Form 14653: Certification by U.S. Person Residing Outside of the United States for Streamlined Foreign Offshore Procedures.

Taxpayers must make this certification under penalty of perjury.  In our experience, the non-willful certification is carefully scrutinized by the IRS.

The IRS wants to know the “why” behind the non-willful conduct. Importantly, the IRS has added new language to both forms stating “Any submission that does not contain a narrative statement of the facts will be considered incomplete and will not qualify for streamlined penalty relief.”  Importantly, taxpayers should always bear in mind that they sign their non-willful conduct certification narrative under penalties of perjury.

Evidence of non-willful behavior could include having a small account, especially in comparison to the taxpayer’s other assets; an account on which no U.S. tax is due; a foreign government-sponsored savings or pension account; minimal or no withdrawals; amount of time in the U.S.; and no prior U.S. tax filings.

There is no perfect fact pattern or objective test for non-willful conduct. Furthermore, the taxpayer must “provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.”

Persuasive legal advocacy is required to affirmatively and persuasively demonstrate credible legal grounds for non-willfulness. Beware of badges (evidence) of willfulness, blind willfulness, concealment, etc. The IRS will carefully monitor taxpayer filings with large accounts making fraudulent claims in the streamlined program and likely seek to punish them to send a warning.

While the streamlined program offers a welcome option for many taxpayers with undeclared accounts, other ways to address past noncompliance remain viable, including the OVDP program and Delinquent FBAR Submission Procedures and Delinquent International Information Return Submission Procedures. The analysis to enter the one program versus other alternative options is complex and requires full legal analysis by a competent experienced tax attorney.

The IRS streamlined program makes it easier for some taxpayers and more difficult for others. Detailed analysis is required to ascertain the risk/reward for each taxpayer.  Regardless, as FATCA continues to go fully online (and the cooperating bank list grows), the cost and risk of doing nothing has gone up exponentially. In summary, taxpayers with undisclosed offshore accounts should fully explore some form of voluntary disclosure before it is too late and much more costly.

Our firm presented an informational webinar on the Streamlined Filing Compliance Procedures. Materials from the webinar can be downloaded here: Game Changer Streamline.

Patel Law Offices has consulted with hundreds of clients regarding their offshore asset and income compliance issues. 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 assets.

Beware: India to sign FATCA agreement with US for sharing of information

Earlier this week, the Indian Cabinet, chaired by Prime Minister Narendra Modi, approved signing of an Inter-Governmental Agreement (IGA) between India and the U.S. for implementation of the U.S. Foreign Account Tax Compliance Act (FATCA).

Indian Finance Minister Arun Jaitley this week said India was not a tax haven and that taxes that were payable by foreign investors should be paid. The era of Indian information sharing and cooperation has begun. This is a major development for Indian financial institutions and U.S. persons with assets in India.

FATCA is a U.S. law which seeks to facilitate flow of financial information. FATCA requires Indian banks to reveal account information of persons connected to the U.S.  Non-compliant financial institutions could be frozen out of U.S. markets and subjected to punitive withholding taxes.

Foreign financial institutions (FFIs) in India, i.e. an insurance company, bank, or mutual fund, would be required to report all FATCA-related information to Indian governmental agencies, which would then report these information to Internal Revenue Service (IRS).  Foreign Financial Institutions must report account numbers, balances, names, addresses, and U.S. identification numbers. There is punitive 30% withholding tax on any financial institution that fails to report.

India agreed to sign a Model 1 FATCA Model Intergovernmental Agreement (IGA) with the U.S.  The IGA would likely require Indian financial institutions to report information on U.S. account holders to India’s Central Board of Direct Taxes, which would then share the information with the U.S. Internal Revenue Service (IRS).  The agreement would provide the Internal Revenue Service (IRS), access to details of all offshore accounts and assets beyond a threshold limit held by Americans here, while a reciprocal arrangement would be offered for Indian authorities as well.

Many Indian financial institutions have already registered on the IRS’s FATCA Registration Portal. The IRS has published a searchable list of financial institutions. The FFI List Search and Download Tool is located on the IRS’s FATCA website. The tool can be used to search for the name of a specific foreign financial institution and find out if it has registered under FATCA. As of today, 739 financial institutions in India have registered with the IRS.  Users can also download an entire list of financial institutions with the tool. See the FFI List Search and Download Tool and User Guide. Countries complying with FATCA can be found at FATCA – Archive.

Who is Reported?

Financial institutions in India will carry out a detailed due diligence on all their clients and report details of their U.S. clients to the Internal Revenue Service.  U.S. persons for tax purposes are generally considered as:

  • A citizen of the U.S. (including an individual born in the U.S. but resident in another country, who has not renounced U.S. citizenship);
  • A lawful resident of the U.S. (including any U.S. green card holder);
  • Most U.S. visa holders (including H-1 and L-1 visa holders);
  • A person residing in the U.S.
  • Somebody who has spent considerable period of time in the U.S.
  • American corporations, estates and trusts may also be considered U.S. persons

Which Accounts?

Indian financial institutions need to report certain accounts to the IRS under FATCA. The need for identifying U.S. person(s) arises from the fact that money invested in India needs to be reported to IRS in the U.S.  While the threshold limit for reporting will be specified by the regulators in India based on FATCA regulations, institutions will have reporting requirements under FATCA, in terms of threshold limits.

As per FATCA, U.S. persons need to report to IRS in the following scenarios:

  • If the total value is at or below $50,000 at the end of the tax year, there is no reporting requirement for the year, unless the total value was more than $75,000 at any time during the tax year.
  • The threshold is higher for individuals who live outside the U.S. .
  • Thresholds are different for married and single taxpayers.

There is a provision for third party reporting under FATCA for FFIs which states, “Foreign financial institutions may provide to the IRS, third-party information reporting about financial accounts, including the identity and certain financial information associated with the account, which they maintain offshore on behalf of U.S. individual account holders”.

While the IRS has recently targeted Swiss, Israeli and Indian banks, India continues to be a focal point for the U.S.  government. While new criminal prosecutions start and continue, our law firm expects unabated aggressive enforcement of the U.S. tax laws, including increased criminal prosecutions and civil investigations. We have been advising our clients to expect the unexpected (and the worst) in their tax treatment and disclosure of offshore assets, particularly for Indian assets.

The fact that 77,000 banks have registered and over 100 countries will be providing government help to the IRS means that no foreign account is secret. U.S. persons must report worldwide income and most must file IRS Form 8938 and Foreign Bank Account Reports (FBAR) to report foreign accounts and assets. With such comprehensive databases, noncompliant taxpayers should beware; the government has better and more complete information than ever.

Patel Law Offices has consulted with hundreds of clients regarding their offshore asset compliance issues. 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.

FATCA Repeal Fails

Last month US Senator Roger Wicker (R-Miss.) introduced a budget amendment SA 621 to repeal the Foreign Account Tax Compliance Act (FATCAFATCA requires foreign financial institutions to disclose to the IRS about their U.S. customers’ accounts.

The U.S. loses an estimated $150 billion in tax revenue each year to tax haven abuse – a revenue shortfall that honest taxpayers have to make up. About $40-70 billion of that revenue loss is from individual tax evasion. In light of those numbers, the virtues of FATCA become exceedingly clear.

FATCA is an enforcement tool.  It exists to give the U.S. government the information it needs to determine ownership of assets in foreign accounts and make it harder for taxpayers to hide assets and evade tax. While FATCA is heavily criticized by foreign governments and financial institutions when it was first enacted, now it is being hailed as the catalyst for change and an example for inter-governmental agreements around the world.

Countries and financial institutions that sign FATCA compliance agreements with the US government agree to automatically share certain tax information. To date, over 77,000 banks and 80 countries have signed such agreements. In 2013, G8 leaders pledged to crack down on tax avoidance and improve transparency by working toward a global version of FATCA. The G20 that year agreed to automatically exchange information by the end of 2015 and called such exchange “the new standard.” In 2014, 47 countries agreed to a global standard of information exchange developed by the Organization for Economic Cooperation and Development.

Last week, budget amendment SA 621, to repeal the Foreign Account Tax Compliance Act (FATCA), failed to reach the US Senate floor for a vote on Friday.

“It’s an unpopular idea to overturn existing tax transparency laws in the Senate,” said Eric LeCompte, executive director of the financial reform organization Jubilee USA Network, which generated thousands of phone calls into the Senate in support of FATCA. “The lack of support for repealing FATCA shows how important anti-corruption legislation is to Congress.”

So for the time being, expect FATCA to remain as a fixed law and powerful enforcement tool.

 

 

Another Swiss Bank Discloses Customer Names to the US

The Department of Justice announced today that BSI SA, one of the 10 largest private banks in Switzerland, is the first bank to reach a resolution under the Department of Justice’s Swiss Bank Program.  Swiss private bank BSI SA avoided prosecution for suspected tax-related offenses by paying a $211 million penalty, becoming the first bank to reach a deal in the U.S. Department of Justice’s voluntary disclosure program, the department said on Monday.

The U.S. government program allows Swiss banks to avoid prosecution by coming clean about their cross-border business in undeclared U.S.-related accounts before they are investigated.

For decades up to 2013, BSI assisted thousands of U.S. clients in opening accounts in Switzerland and hiding the assets and income held in the accounts from tax authorities, according to a non-prosecution agreement signed on Monday. As part of the deal, BSI agreed to cooperate in any related criminal or civil proceedings and put better controls in place.

The agreement is expected to be the first of a flood of settlements by Switzerland’s banks, which have come under intense pressure to give up the banking secrecy so embedded in Swiss culture and the world’s largest offshore financial center.

BSI acknowledged that it issued pre-paid debit cards to U.S. clients without their names visible on the card to help them keep their identities secret, U.S. authorities said.

It also said the bank helped U.S. clients create “sham corporations” and trusts that masked their identities.

In some instances, U.S. clients would tell their bankers that their “gas tank is running empty” as coded language to indicate that they needed more cash on their cards, according to a statement of facts..

Swiss financial regulator FINMA said in a statement on Monday that BSI had breached its obligations to identify, limit and monitor the risks involved in its dealings with U.S. clients, having served a large volume of customers with undeclared assets.

FINMA said it hopes that, case by case, each bank in the U.S. program “will reach an agreement with the DoJ to settle their legacies related to U.S. clients subject to U.S. taxation.”

BSI, one of Switzerland’s largest private banks, apparently had more U.S. account holders than many other banks in the program, a reason for the sizeable penalty. Sixty or 70 other Swiss banks are expected to strike similar agreements with the Justice Department in the coming months.

The BSI agreement also has substantial implications for account holders. If a U.S. taxpayer has an unreported account at a Swiss bank and enters the offshore disclosure program, the account holder has to pay a penalty equal to 27.5 percent of the high balance in the account.

With the announcement of BSI’s non-prosecution agreement, its noncompliant U.S. account holders must now pay that 50 percent penalty to the IRS if they wish to enter the IRS’ program.  Once a bank becomes the publicly announced subject of an investigation or enforcement action, including the execution of a non-prosecution agreement, the 27.5 percent penalty facing a taxpayer who holds an undisclosed account rises to 50 percent.

BSI and other banks in the Swiss Bank Program are also providing detailed information to the department about transfers of money from Switzerland to other countries. The Tax Division and the IRS intend to follow that money to uncover additional tax evasion schemes.

The US Department of Justice has emphasized the importance of identifying U.S. account holders who have undeclared foreign bank accounts, and BSI has provided assistance in that task.  Because of the information provided to the department under the program, the Tax Division has already begun the process of identifying noncompliant U.S. accountholders who have maintained accounts at many Swiss banks participating in the Swiss Bank Program.

According to the US Department of Justice press release “Today’s action sends a clear message to anyone thinking about keeping money offshore in order to evade tax laws,” said Chief Richard Weber of IRS-Criminal Investigation (CI).  “Fighting offshore tax evasion continues to be a top priority for IRS-CI and we will trace unreported funds anywhere in the world.  IRS-CI special agents are our nation’s best financial investigators, trained to follow the money and enforce our country’s tax laws to ensure fairness for all.”

Seminar: Navigating Foreign Waters: The Complex Requirements of Foreign Accounts Compliance on US tax laws

With the IRS aggressively targeting taxpayers with unreported offshore accounts, tax professionals must know benefits and pitfalls of offshore accounts.

Our firm presented technical seminars titled Navigating Foreign Waters: The Complex Requirements of Foreign Accounts Compliance on US tax laws to tax professionals on foreign account disclosure, FBARs, and compliance programs to The Institute of Chartered Accountants of India (ICAI) and the Bombay Chartered Accountants’ Society. Materials from the seminars can be downloaded here: Navigating Foreign Waters- Discussion on the U.S. Laws for Foreign Accounts Compliance

New Warnings in the IRS’ Streamlined Filing Compliance Procedures

The Internal Revenue Service has recently updated the certification forms required to be filed by taxpayers seeking to avail themselves of the Streamlined Filing Compliance Procedures.  The streamlined program was significantly expanded by the IRS in June 2014 in order to provide a meaningful way for non-willful taxpayers to remedy past non-compliance with respect to non-U.S. bank accounts and income associated with those accounts.  Any taxpayer seeking to utilize the streamlined program must submit a form entitled Form 14654–Certification by U.S. Persons Residing in the United States for Streamlined Domestic Offshore Procedures (SDOP) (for U.S. residents) or Form 14653–Certification by U.S. Persons Residing Outside of the United States for Streamlined Foreign Offshore Procedures (SFOP) (for non-U.S. residents).

The streamlined filing compliance procedures are designed for only individual taxpayers, including estates of individual taxpayers. The streamlined procedures are available to both U.S. individual taxpayers residing outside the United States and U.S. individual taxpayers residing in the United States. In order to enter the streamlined offshore procedures, the taxpayer must officially certify that their failure to report all income, pay all tax, and file all required information was due to non-willful conduct.

In either version of the form, the taxpayer is certifying, under penalties of perjury, that:

“My failure to report all income, pay all tax, and submit all required information returns, including FBARs, was due to non-willful conduct.  I understand that non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”

This is a very important element of the streamlined process.  Any taxpayer who cannot make such a certification is ineligible for the relief afforded by the Streamlined Filing Compliance Procedures.  As part of the certification, the taxpayer is required to provide a factual statement explaining the reasons for non-compliance, including if such non-compliance was attributable to advice received from a professional advisor:

“Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts. The field below will automatically expand to accommodate your statement of facts.”

Some taxpayers apparently have been submitting the certification form without the narrative statement.  As a result, the IRS has updated the forms to now include, in bright red font, the following warning:

“Note:  You must provide specific facts on this form or on a signed attachment explaining your failure to report all income, pay all tax, and submit all required information returns, including FBARs.  Any submission that does not contain a narrative statement of facts will be considered incomplete and will not qualify for the streamlined penalty relief.”

In spite of the standardization of the forms, very careful drafting and persuasive legal advocacy of a taxpayer’s particular circumstances are still recommended for a clear demonstration of non-willfulness. Beware: the statement can be used against the taxpayer.  The narrative portion of the certification form has always been the most important part of the streamlined submission, because that is what the IRS will review in order to determine whether the taxpayer’s failure to file FBARs and report income from offshore accounts was non-willful.  All certifications are reviewed carefully by the IRS.  The updated form with its new conspicuous warning language further confirms the important nature of the narrative.  Taxpayers who choose to submit certification forms without a narrative, or who cannot complete the narrative for whatever reason, are now warned that their streamlined applications will be rejected.

Whether a taxpayer’s conduct is non-willful is a critical question of fact and law, based largely on the taxpayer’s particular facts and circumstances. Taxpayers with foreign accounts would be wise to retain tax legal counsel, to better analyze the taxpayers’ position.  In our experience, good facts applied to the law will result in a result.  Legal research, careful drafting and legal advocacy of a taxpayer’s particular circumstances are still strongly recommended for a favorable result.

Hiding Money or Income Offshore Among the “Dirty Dozen” List of Tax Scams for the 2015 Filing Season

IR-2015-09, Jan. 28, 2015

WASHINGTON — The Internal Revenue Service today said avoiding taxes by hiding money or assets in unreported offshore accounts remains on its annual list of tax scams known as the “Dirty Dozen” for the 2015 filing season.

“The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore,” said IRS Commissioner John Koskinen. “Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order.”

Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 50,000 disclosures and we have collected more than $7 billion from this initiative alone.  The IRS conducted thousands of offshore-related civil audits that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

The IRS remains committed to our priority efforts to stop offshore tax evasion wherever it occurs.  Even though the IRS has faced several years of budget reductions, the IRS continues to pursue cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil.

Through the years, offshore accounts have been used to lure taxpayers into scams and schemes.

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their returns or hire people to help with their taxes.

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shut down scams and prosecute the criminals behind them.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced.  The IRS also announced its SDOP and SFOP last year for non-willful cases.

Another Customer with Unreported Offshore Bank Accounts Pleads Guilty

George Landegger, CEO of pulp and paper company, pleaded guilty last week in New York to a federal charge of failing to file a required report to the IRS about the account. He admitted that he maintained the undeclared account worth $8.4 million at the Swiss Bank in Zurich from the early part of the last decade to 2010.

Landegger, 77, of Ridgefield, Connecticut, agreed as part of his plea bargain to pay a civil penalty of more than $4.2 million and back taxes of more than $71,000. A judge set his sentencing for May 12′ he faces a maximum of five years in prison, although the actual punishment likely will be less.

“As he admitted, George Landegger maintained secret Swiss bank accounts he repeatedly failed to declare to the IRS, and he took steps to conceal his ownership of the accounts,” Manhattan U.S. Attorney Preet Bharara said in a prepared statement. “The benefits of citizenship or residency in the United States come with certain obligations, including, as George Landegger well knew, the legal requirement to report foreign bank accounts. He will now pay for his illegal conduct.”

Parsons & Whittemore employed hundreds of people at a pair of pulp mills in Monroe County but sold them in 2010 to Georgia-Pacific, a subsidiary of Koch Industries.

Court records in the criminal case indicate that in 2005, a representative of Swiss Bank recommended to Landegger that he use a Zurich-based lawyer to create a sham trust to hold the executive’s undeclared accounts at the bank. That trust – named “Onicuppac,” or cappucino spelled backwards – was organized under the laws of Lichtenstein and kept money in the bank, outside of the reach of the IRS.

Court records describe an April 2009 meeting between Landegger, an unnamed Swiss Bank official and a third person in which they discussed news accounts of the United States cracking down on untaxed earnings hidden in foreign bank accounts. At the time, U.S. officials were investigating UBS AG regarding allegations that the Swiss bank was helping U.S. taxpayers maintain undeclared accounts.

Landegger and the Swiss Bank official discussed the possibility of entering the IRS’s offshore voluntary disclosure program but rejected the idea. Instead, he and the bank official decided to empty the accounts of their assets by slowly moving funds out of Switzerland. Court records show that between May 2009 and July 2010, Landegger, with the assistance of the banker and others, began transferring the assets from his account to a new, declared account in Canada. He then transferred the remaining funds to an account maintained by another person in Hong Kong.

During the time Landegger kept undeclared accounts at the Swiss Bank, capital gains and losses were generated in the account from his investments in foreign securities, according to the plea agreement.

IRS Acting Special Agent-in-Charge Thomas E. Bishop said “The Internal Revenue Service has made uncovering hidden offshore accounts and income a top priority and, working with the Department of Justice, we continue to demonstrate our success in doing so.” “The prosecutions of individuals who decide to keep their foreign assets concealed and of those who advise and assist them serve as clear warnings to anyone who doubts the U.S. government’s resolve.”

A timely OVDP submission (or maybe SDOP filing) may have saved Mr. Landegger.  The case is interesting because it reveals the discussions between the bankers and client, which ultimately were criminally used against the client. In recent years, foreign banks have come under great scrutiny by the US government.  We expect more banks to reveal more information in order to avoid civil and criminal complications for the bank. The case provides a valuable lesson: be careful of all verbal and written communications with bankers.

Internal Revenue Service announces new International Data Exchange Service: The Beginning of Information Sharing

The Internal Revenue Service announced this week the opening of the International Data Exchange Service (IDES) for enrollment.  Financial institutions and host country tax authorities will use IDES to securely send their information reports on financial accounts held by U.S. persons to the IRS under the Foreign Account Tax Compliance Act (FATCA) or pursuant to the terms of an intergovernmental agreement (IGA), as applicable.

More than 145,000 financial institutions have registered through the IRS FATCA Registration System. The U.S. has more than 110 IGAs, either signed or agreed in substance. Financial institutions and host country tax authorities will use IDES to provide the IRS information reports on financial accounts held by U.S. persons.

“The opening of the International Data Exchange Service is a milestone in the implementation of FATCA,” said IRS Commissioner John Koskinen. “With it, comes the start of a secure system of automated, standardized information exchanges among government tax authorities. This will enhance our ability to detect hidden accounts and help ensure fairness in the tax system.”

Where a jurisdiction has a reciprocal IGA and the jurisdiction has the necessary safeguards and infrastructure in place, the IRS will also use IDES to provide similar information to the host country tax authority on accounts in U.S. financial institutions held by the jurisdiction’s residents.

Using IDES, a web application, the sender encrypts the data and IDES encrypts the transmission pathway to protect data transfers. Encryption at both the file and transmission level safeguards sensitive tax information.

Host country tax authorities in Model 2 IGA jurisdictions and financial institutions are encouraged to begin the enrollment process well in advance of their reporting deadline.

For host country tax authorities in Model 1 IGA jurisdictions, the IRS will directly notify them to let them know when it is time to enroll. Financial institutions will initiate enrollment online on their own; in order to enroll, the financial institution will need to have registered as a participating financial institution through the IRS FATCA Registration System and have a global intermediary identification number (GIIN) that appears on the IRS FATCA FFI list.

The IRS has published a searchable list of financial institutions. The FFI List Search and Download Tool is located on the IRS’s FATCA Website. The tool can be used to search for the name of a specific foreign financial institution and find out if it has registered under FATCA. Users can also download an entire list of financial institutions with the tool. See the FFI List Search and Download Tool and User Guide. Countries complying with FATCA can be found at FATCA – Archive.

The fact that 145,000 banks have registered and are providing government help to the IRS means that no foreign account is secret. US persons must report worldwide income and many must file IRS Form 8938 to report foreign accounts and assets. With such comprehensive databases, noncompliant taxpayers should beware; the IRS has quicker, better and more complete information than ever.