Archive for 'International audits, enforcement'

Voluntary Disclosure and Frozen Swiss Bank Accounts

I have been long silent on this topic but for those of you who need the information, here it is.


The Swiss government and banks are folding like a bunch of cheap patio chairs. Banks have started and will continue to hand over over information about their U.S. customers to the IRS. Expect this to continue, and expect the contagion to spread to other countries.

That’s not news.


Some Swiss banks are now freezing 50% of the account balance of their American customers until the customers give proof that they have solved their U.S. tax problems.

I don’t see people talking about this too much. You need to know this is happening.

Let it roll around in your brain for a moment. Swiss banks are arbitrarily freezing half of their customers’ accounts, leaving the customers with a tough choice: enter the voluntary disclosure program or kiss their money goodbye. This tilts the legal strategy calculus dramatically.


My professional advice to you is “Don’t f___ around.” Make a decision on what to do. Make the decision fast. If you get to the point where your Swiss banker tells you that half the account is frozen, you have probably waited too long.

This more or less forces you into the voluntary disclosure program. That might be the right move for you or it might not. But your options are narrowing.

Why I Have Been Silent on OVDI

I have been silent because our office burned out on voluntary disclosure program cases. We no longer do them. We have one case lingering from the 2009 program, and that’s it. That one should be finished pretty soon.

So I’m not looking for new business here. If you want help, let me know and I will be happy to help you make a connection to someone. Ping me an email. I want you to be able to sleep well at night.

It’s Not Rocket Science

But really, a voluntary disclosure case is commodity legal work and takes relatively little skill. There are very few moving parts, and you can buy this service almost anywhere. (Well, don’t turn off your brain when you do this, but the basic idea still stands. You don’t need a rocket scientist tax lawyer.)

When I turn off Adblock I see that lawyers are buying advertising from Google, FFS. When a legal service is sold through Google AdWords, that’s when you know it is a commodity.

Except When It Is

Some of you out there do have tough facts. It’s hard to make a decision about what to do. Well, I should say it is easy to make the reflexive decision to use the voluntary disclosure program.

But if you are at all thoughtful and if you refuse to take government PR as the gospel, there is a judgment call to be made: use the voluntary disclosure program or find another method to solve the problem.

Criminal Prosecution

Frankly, in the vast, vast majority of situations the likelihood of criminal prosecution is nil. If you are talking to a lawyer about your situation and you are getting a steady diet of “Prison!” and “Fear!” you should ask for damned good reasons. And expect a couple of decades of experience in criminal tax defense to back up those reasons.

I am not saying there is a zero risk. Each case is different. I’m just saying that unless you are Dr. Evil Incarnate and big money is involved, you should assess your risks dispassionately and with the help of an experienced professional.

Tax cases are either money problems, or money + prison problems. I am telling you that very few tax cases are prison problems.

It’s a Money Problem

Most of these cases come down to money–minimizing the penalty risks and doing the tax returns right to minimize tax. Analyze your situation by looking at every possible strategy–even the dumb ones. What is the expected economic outcome of each alternative strategy? Assuming that prison risks are off the table, you are making a “minimize my expense” decision.

Well, that’s not strictly true. You have a money problem and an emotional problem. Some strategies for cleaning up your messes will have uncertainty built into them. If you can’t stomach the uncertainties, you should throw more money at the situation until you have certainty. And that usually means the voluntary disclosure program–this is the only way to buy immediate closure.

What We Do Now

As I said, we don’t do voluntary disclosure program cases anymore. We got sick of putting grandmothers on the government’s conveyor belt to oblivion.

But we haven’t walked away entirely from helping people who find themselves in a jackpot. We have taken a slightly different role in the process: we are the back office team.

Now we work with criminal tax defense lawyers on messy, problematic, high-stakes cases. You hire a criminal tax defense lawyer (I know who you should call) to deal head-on with the government. You want someone who is in semi-constant contact with the Department of Justice. Strategies are decided here.

We do the hard technical tax analysis and prepare the tax returns. Your tax returns will get looked at. The best thing you can do for yourself is to have those tax returns get a hostile audit and come back with a “no change” result. That gives your defense lawyer the best leverage for negotiating a favorable result.

That’s what we do now. It is the combination of experienced international tax lawyers and three in-house CPAs that makes the difference. We can (and do) have three, four or five of our people at projects for months at a time. They have had experience in dozens of cases just like yours. That’s power.

Tax returns are how you talk to the government about money. I don’t know anywhere else that combines the skill-sets of forensic accounting, tax accounting, tax return preparation, and hard-core international tax expertise to make those tax returns deliver the right message.

And you know what? We’re having fun with it.

Sooner or later, secrecy fails as a tax planning strategy


The train is headed straight at you. You cannot tell how far away it is. You can step off the tracks to safety.

Alt: you’re naked but you don’t know it yet.

British Crown Dependencies and Overseas Territories

I know that there are a lot of you out there with corporations, trusts, foundations, and other holding structures. You are relying on the “How not to be seen” strategy. (YouTube. You might laugh out loud. You Have Been Warned.)

I know this because I have set these structures up, and I have torn them apart. I have defended clients with Very Serious Problems involving these structures. I have prepared the tax returns to disclose the structures and the assets inside them.

If your structures are set up in British Crown Dependencies and Overseas Territories (the Channel Islands, British Virgin Islands, Bahamas, the Caymans, etc.), be warned. We are on the long march towards full disclosure of the beneficial ownership of these structures.

Translated: the U.K. wants to know the people behind the corporations, trusts, etc. Mr. Cameron wants to know your name.

The money quote from David Cameron’s speech on 15 June 2013:

“[S]ome people use complicated and fake structures to hide their profits and avoid taxes and because bribes are often held in opaquely owned companies with bank accounts in secrecy havens.

The UK is today leading the way by committing to create a central registry of company ownership.
And this morning I have held meetings with our overseas territories and crown dependencies.

Each and every one of our overseas territories and crown dependencies has agreed to sign up to the multi-lateral convention on information exchange to exchange information automatically with the UK and to produce action plans on beneficial ownership.”


That, too. NSA, etc.

No Secrets

What does this mean to you? For those of you with something to hide, I think you should plan on reality being approximately equal to:

“My ‘secret’ information is proactively handed to British government officials, who reflexively and promiscuously share it with the the United States and any other government official who asks, from any country in the world.”

In other words, your secrets are not secret.

This will take some time to happen. But it will take less time than you think.

Be prepared for the day when these holding structures are as visible to your home country government.

Only the whims and vagaries of U.K. politics and civil service will stand between you and total disclosure. And we know that a politician will throw you under the bus in a heartbeat–especially if you cannot vote for him.


Americans: secrecy is a weak tax planning strategy; stop using it.

What seemed like a good idea 10 years ago has now compounded itself into a seemingly intractable dilemma. I know this because people tell me so every day.

Start looking for what is true, not what you want to be true. When you hear the answer, accept it. Swallow and digest the big chunks of truth.

Other Countries

We have a lot of non-U.S. clients–from countries other than the EU, U.K, Australia, etc.

For many of them, the concern is rather more primal. When the revolution comes, everything they own can (and will) be seized. For a few of our clients, they will be among the first to be lined up against the wall and shot. Some of them tell me stories of seeing events like this in their own lifetimes. They do not want to repeat it.

You are the target of Mr. Cameron’s plans. Again, from his 15 June 2013 speech:

Take Equatorial Guinea, Africa’s third largest oil producer where the President has maintained that oil revenues are a state secret. Action by the US Justice Department against the President’s son lists assets allegedly acquired with money stolen from the state including a Gulfstream jet, eight Ferraris, seven Rolls-Royce, a $38 million estate in Malibu, and white gloves previously owned by Michael Jackson.

This is the model that the United Kingdom and the United States will follow. If it is politically expedient to the U.S. government, you will lose everything you own.

You need rather more nuanced thinking.


I am not saying your private financial affairs should be completely visible. Keeping things confidential is smart for a variety of reasons–personal safety among them.

Run your life like a poker game where you get to deal yourself the cards you want. If your opponent–the IRS, Inland Revenue, or anyone else–calls your bluff, you have to flip the cards over.

You are a fool if you don’t know your opponents.

You are a fool if you deal yourself losing cards.

Play the game as though your bluff will be called. Choose your cards so that even the Department of Justice will concede that you played the game right.

In other words, keep it confidential, and keep it legal.

In this poker game, your opponents WILL call your bluff.

You get to choose. Why are you playing to lose?

Tax Returns

A hint. Tax returns are how you talk to the government about money. It all starts here.

List of international tax forms (first draft)


Upcoming speech

I am going to be giving a one-hour high speed presentation at the 2011 Tax Update and Planning Conference sponsored by the California Society of CPAs. It will be presented in Universal City, San Francisco, and on the web.

My hour is intended to give practitioners a checklist approach to the various tax and reporting forms they might need to know about in the international context. For someone who deals primarily with domestic stuff, the international world is a mystery. I want to dispel that mystery a bit.

First draft of a list

Here, from my course materials for my Tax Planning and Compliance for Multinational Families course is where I am in gathering a comprehensive list of all of the tax forms that are specific to international tax practice.

I need help

Help! Do you know of any other forms out there that I might have missed?

Another point — what would be a good way to organize these?  By taxpayer type (individual, trust, estate, corporation, etc.)?  By inbound/outbound?  By reverse height according to eye color?  What is useful?

Tax Forms

  • Form W-7 — (Application for Individual Taxpayer Identification Number)
  • W-8 — Certificate of Foreign Status
  • W-8EXP — Certificate of Foreign Government or Other Foreign Organization for United States Tax
  • W-8BEN — Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding
  • W-8ECI — Certificate of Foreign Person’s Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States
  • W-8IMY — Certificate of Foreign Intermediary, Foreign Partnership, or Certain U.S. Branches for United States Tax Withholding
  • Form 706 — United States Estate (and Generation-Skipping Transfer) Tax Return
  • Form 706-A — United States Additional Estate Tax Return
  • Form 706-GS(D) — Generation-Skipping Transfer Tax Return for Distributions
  • Form 706-GS(D-1):Notification of Distribution from a Generation-Skipping Trust
  • Form 706-CE — Certificate of Payment of Foreign Death Tax
  • Form 706-GS(T) — Generation-Skipping Transfer Tax Return for Terminations
  • Form 706-NA — United States Estate (and Generation Skipping Transfer) Tax Return
  • Form 706-QDT — U.S. Estate Tax Return for Qualified Domestic Trusts
  • Form 720 — Quarterly Federal Excise Tax Return
  • Form 1001 — Ownership, Exemption, or Reduced Rate Certificate
  • Form 1040NR — U.S. Non-Resident Alien Income Tax Return
  • Form 1040NR-EZ — U.S. Income Tax Return for Certain Nonresident Aliens with No Dependents
  • Form 1042 — Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
  • Form 1042-S — Foreign Person’s U.S. Source Income Subject to Withholding
  • Form 1078 — Certificate of Alien Claiming Residence in the United States
  • Form 1120-F — U.S. Income Return of a Foreign Corporation
  • Form 5472 — Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business
  • Form 8288 — U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests
  • Form 8288-B — Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
  • Form 8300 — Report of Cash Payments Over $10,000 Received in a Trade or Business
  • Form 8709 — Exemption from Withholding on Investment Income of Foreign Governments and International Organizations
  • TD F 90-22.1 — Report of Foreign Bank and Financial Accounts
  • TD F 90-22.47 — Suspicious Activity Report
  • TD F 90-22.53 — Designation of Exempt Person

U.S. Direct Investment Abroad

These forms are found at the United States Department of Commerce website for the Bureau of Economic Analysis:

  • BE-10A — Benchmark Survey of U.S. Direct Investment Abroad
  • BE-11A — Annual Survey of U.S. Direct Investment Abroad — Report for U.S. Reporter
  • BE-11B(LF) — Annual Survey of U.S. Direct Investment Abroad — Report for Majority Owned Foreign Affiliate
  • BE-11B(SF) — Annual Survey of U.S. Direct Investment Abroad — Report for Majority Owned Foreign Affiliate
  • BE-11C — Annual Survey of U.S. Direct Investment Abroad — Report for Minority Owned Foreign Affiliates
  • BE-11 — Annual Survey of U.S. Direct Investment Abroad — Claim for Not Filing
  • BE-577 — Direct Transactions of U.S. Reporter with Foreign Affiliate

Foreign Direct Investment in the United States

These forms can be found at the United States Department of Commerce website for the Bureau of Economic Analysis:

  • BE-12(LF) — Benchmark Survey of Foreign Direct Investment in the U.S.
  • BE-12 Bank — Benchmark Survey of Foreign Direct Investment in the U.S.
  • BE-12(SF) — Benchmark Survey of Foreign Direct Investment in the U.S.
  • BE-12(X) — Benchmark Survey of Foreign Direct Investment in the U.S. — Claim for Exemption from Filing BE-12(LF), BE-12(SF), or BE-12Bank
  • Initial Report on a Foreign Person’s Direct or Indirect Acquisition, Establishment, or Purchase of the Operating Assets of a U.S. Business Enterprise, Including Real Estate
  • Report by a U.S. Person Who Assists or Intervenes in the Acquisition of a U.S. Business Enterprise by, or Who Enters Into a Joint Venture With, a Foreign Person

Other Surveys

These forms are found at the United States Department of Commerce website for the Bureau of Economic Analysis:

  • BE-605 — Transactions of a U.S. Affiliate, Except a U.S. Banking Affiliate, with Foreign Parent
  • BE-605 (Bank) — Transactions of a U.S. Affiliate, Except a U.S. Banking Affiliate, with Foreign Parent &  Bank, Transactions of U.S. Banking Affiliate with Foreign Parent
  • BE-15(LF) — Annual Survey of Foreign Direct Investment in the U.S.
  • BE-15(SF) — Annual Survey of Foreign Direct Investment in the U.S.
  • BE-15 Supplement C — Annual Survey of Foreign Direct Investment in the U.S. — Claim for Exemption from Filing a BE-15(LF) or BE-15(SF)
  • BE-22 — Annual Survey of Selected Services Transactions with Unaffiliated Foreign Persons
  • Ocean Freight Revenues and Foreign Expenses of U.S. Carriers, Foreign Airline Operators’ Revenues and Expenses in the U.S.
  • U.S. Airline Operators’ Foreign Revenues and Expenses
  • Annual Survey of Construction, Engineering, Architectural, and Mining Services Provided by U.S. Firms to Unaffiliated Foreign Persons
  • Annual Survey of Reinsurance and Other Insurance Transactions by U.S. Insurance Companies with Foreign Persons
  • BE-93 — Annual Survey of Royalties, License Fees, and Other Receipts and Payments for Intangible Rights Between U.S. and Unaffiliated Foreign Persons
  • BE-120 — Benchmark Survey of Selected Services Transactions with Unaffiliated Foreign Persons
  • 16 CFR 803—Appendix: Notification and Report Form for Certain Mergers and Acquisitions (this is the “Hart, Scott, Rodino Notification”)

How the IRS audits attorneys

For those of you concerned about the IRS and your risk factors, please take a look at the Attorneys Audit Technique Guide on the IRS website.

Attorney-Client Privilege When Your Attorney Gets Audited

For those of you who are deeply concerned about confidentiality and how far the IRS can go in digging into your life, look particularly at the area on attorney-client privilege.  It isn’t pretty.


  • The attorney-client privilege protects the disclosure of confidential communications between a client and attorney.
  • The identity of the client and the fee arrangement between the attorney and client is not protected by the attorney-client privilege.
  • The attorney-client privilege must be claimed by the CLIENT, and the privilege must not have been previously waived.  If you have made a disclosure to a third party already, that would result in a waiver of the privilege.  (Hint — don’t take any extra people along with you when you meet with your attorney.)

There is more.  Read it.

This is not new stuff.  But there are plenty of people out there who have serious problems and need to protect themselves.

In many cases, the question of attorney-client privilege is one of academic interest, not of real practical value to the client.  Too many third party disclosures have already been made and the cat, so to speak, is out of the bag.

Tin Foil Hat Lawyering

If you are deeply concerned about this and think you need as much protection as possible, it is in your best interests to (1) not accidentally waive the attorney-client privilege; and (2) go into tinfoil hat mode.  In tinfoil hat mode we do not talk to the client on the phone except to set a meeting.  We do not email each other, not even PGP-encrypted email.  We meet in person in neutral, secure places outside the United States.  Tinfoil hat mode is expensive.

Hat tip to Jim Counts, CPA for triggering this blog post.

The magnificent equality of the FBAR amnesty

While poking around the interwebs looking for the source of Richard Westin’s quote, I came across this:

The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.

Anatole France, The Red Lily, 1894, chapter 7. [French novelist (1844 - 1924)].

The parallel to Lawrence Douglas Shulman’s application of the FBAR law could not be more apparent. Multimillionaire tax evaders and immigrant grandmothers of modest means are both treated with exquisite fairness by the Constitution Avenue posse.

Larry Douglas Shulman’s intentions are two-fold:

  • be Congress’s Golden Boy by collecting a lot of money from any source possible; and
  • show US taxpayers that hiding money abroad is a mug’s game.
  • See this interview he did with NPR.

    I think Mr. Shulman has decided that bankrupting a few thousand immigrants and Americans living abroad is worth it, pour encourager les autres.