Foreign account amnesty stuff

Lots of new posts over at http://foreignbankaccountamnesty.com.  We’re massively busy with this stuff right now.  The deadline is September 23, 2009, so go over there, take a look around, and call us if you need help coming clean with the IRS on unreported offshore income or financial accounts.

Call me.  Mobile +1-626-437-2500.  Yeah, even weekends.  Iron. Hot. Strike.  Etc.

What the Swiss settlement means

Jack Townsend has — as usual — a thoughtful analysis of the implications of the UBS settlement in which UBS will cough up a few thousand names of U.S. taxpayers.  (Exact details of the settlement haven’t been publicized yet.)

It seems clear to me (and to Mr. Townsend) that the settlement depends on the Swiss government’s own tortured reinterpretation of Swiss bank secrecy laws.  (Translation: they’re scrambling for a fig leaf). Jack says:

I focus on the legal construct that the Swiss will reportedly use to justify the limited disclosures under the exchange of information provision of the U.S. / Switzerland treaty. Switzerland has long distinguished between tax evasion and tax fraud which in U.S. law are synonymous terms. Under Swiss law as interpreted (it’s all about interpretation), tax evasion is not criminalized in Switzerland, but tax fraud is. I don’t know the precise distinction between the two in Swiss law, but gather that tax fraud (crime) is some egregious form of tax evasion (otherwise civil). The egregious form involves more affirmative steps to hide, evade and deceive. So, looking at the speculated shape of the settlement, if the depositor was an ordinary tax cheat setting up a directly owned UBS account, his name and account will not be disclosed, but if the depositor injected gossamer entity structures to further obscure, his name and account will be disclosed. Apparently, Switzerland will now interpret the latter more egregious conduct as tax fraud, permitting it to disclose at the request of the United States.

If, indeed, this is a reinterpretation of Swiss law and mutual assistance treaties (or provisions of treaties), then the reinterpretation would logically apply not just to UBS but to all Swiss financial institutions. Some other Swiss financial institutions have apparently claimed that they are not like UBS (smaller and did not exploit their enablement activity on U.S. soil) and thus that their U.S. depositors’ accounts will not be disclosed. (See the allegations in the Jeff Chernick indictment discussed here.) I am not sure that level of assurance can be given where entities are part of the structuring for the account. And, I expect that the IRS may be licking its chops to make the requests for mutual assistance with respect to other Swiss financial institutions.

Here is what I predict. It has been a long-standing assumption among tax practitioners that bad dog taxpayers should only do business with financial institutions which have no physical presence in the United States. If (hypothetically) you are a foreign bank but you have branches in the U.S., then the U.S. government can play the game of “Tell me a secret or I revoke your bank charter.”

With this settlement (and perhaps a re-negotiation of the treaties between Switzerland and the United States) Swiss banks with no U.S. presence whatsoever will not be immune. The IRS then says “Tell me a secret or the Swiss government will revoke your bank charter.”

So what will people do? Sorry to bring in this analogy but just look at the U.S. diplomatic and military strategy of the last decade or so. How successful has the application of massive military and diplomatic force been in eliminating terrorist organizations? Or if you are young and remember playing with mercury, remember what happens when you have a blob of mercury and you push it with your finger. It breaks up into a bunch of tiny blobs, disburses, and goes in 50 different directions.

Just sayin.’ Moralize all you want. But people are people. Don’t expect the world to conform to what Congress thinks is right.

Let me be clear about me and what I do professionally. Life is too short to mess around. I help people get clean and stay clean. My professional work involves being able to put everything on the table in front of a government agent and get a “You’re completely clean” answer if my client is examined. We’re on the planet once and I don’t intend to spend any of my time in a prison or on the run (mentally or in reality). kthxbai.

You want clean? You want private? You want legal? You want tax-efficient? Call me. Mobile phone +1-626-437-2500.

Signature power but no ownership interest in foreign account? Extension!

For your reading pleasure, here is Notice 2009-62.  If you have signature power over a foreign financial account but the money isn’t yours, then you have an extension of time to deal with the “Come to Jesus!” clean-up and file all of your paperwork with the IRS.

If this applies to your particular situation, it is good news.  It is also good news in the meta-news sense:  it indicates flashes of common sense at the IRS.    (Sorry, IRS.)

Here’s what the IRS said:

Notice 2009-62

FBAR Filing Requirements – Extended Filing Date for U.S. Persons Having Signature Authority Over, But No Financial Interest In, a Foreign Financial Account, and for U.S. Persons with Financial Interest In, or Signature Authority Over, Foreign Commingled Funds: Request for Public Comments on FBAR Filing Requirements

Notice 2009-62; 2009 IRB LEXIS 393

August 07, 2009

I. Background and Purpose

The Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1 (hereinafter referred to as “FBAR”), provides necessary information for certain governmental agencies. Information on the FBAR may be used in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism. This governmental need for information is balanced with the administrative concerns presented by the filing of the information by U.S. persons.

In October 2008, the IRS revised the FBAR and the accompanying instructions. On June 5, 2009, the IRS issued Announcement 2009-51, 2009-25 I.R.B. 1105, which stated that the IRS is temporarily suspending the filing requirement of the FBAR for those persons who are not U.S. citizens, residents, or domestic entities. On May 6, 2009 and June 24, 2009, the IRS posted questions and answers (Q&As-9 and -43, respectively) on its public website ( www.irs.gov ) that provide relief to certain persons who only recently learned of their obligation to file an FBAR by setting forth conditions and procedures for filing Form TD F 90-22.1 by September 23, 2009. More information concerning this relief is available at ,  http://www.irs.gov/newsroom/article/0,,id=210027,00.html. This Notice provides additional administrative relief for (i) persons with no financial interest in a foreign financial account but with signature or other authority over the foreign financial account (hereinafter referred to as “signature authority”), and (ii) persons with a financial interest in, or signature authority over, a foreign financial account in which the assets are held in a commingled fund (hereinafter referred to as “foreign commingled funds”). The Department of the Treasury intends to issue regulations clarifying the FBAR filing requirements pertaining to those persons with respect to these foreign financial accounts, and solicits comments related to these FBAR filing requirements in this Notice.

II. Extended Filing Date for Specified Persons

A. Current FBAR Instructions

The current instructions to the FBAR provide, with certain exceptions, that U.S. persons that have signature authority over, but no financial interest in, a foreign financial account are required to file an FBAR. These persons must report the account on an FBAR even if the foreign financial account is reported on an FBAR filed by the owner of the account (or other person that has a financial interest in the account).
The current instructions to the FBAR also provide that a foreign financial account that must be reported on an FBAR includes any bank, securities, securities derivatives, or other financial instruments account. The FBAR instructions further provide that those accounts “generally also encompass any accounts in which the assets are held in a commingled fund and the account owner holds an equity interest in the fund (including mutual funds).”

The current instructions to the FBAR also provide that Form TD F 90-22.1 with respect to a given calendar year must be filed with the Department of the Treasury on or before June 30 of the succeeding year. Thus, except as provided in the prior relief granted by the IRS on its public website and the relief granted in this Notice, FBARs with respect to the 2008 calendar year should have been filed on or before June 30, 2009.

B. Extended Date for Filing an FBAR

In light of the additional time needed for the Department of the Treasury to address issues pertaining to FBAR filing requirements and the need to provide administrative relief for (i) persons with signature authority over, but no financial interest in, a foreign financial account, and (ii) persons with a financial interest in, or signature authority over, a foreign commingled fund, this Notice provides that those persons have until June 30, 2010, to file an FBAR for the 2008 and earlier calendar years with respect to these foreign financial accounts. Thus, eligible persons that avail themselves of the administrative relief provided in this Notice may need to file FBARs for the 2008, 2009 and earlier calendar years on or before June 30, 2010, to the extent provided in future guidance.

The FBAR filing extension provided by this Notice applies to FBARs with respect to 2008 and earlier calendar years. For (i) persons with signature authority over, but no financial interest in, a foreign financial account, and (ii) persons with a financial interest in, or signature authority over, a foreign commingled fund, the FBAR filing extension provided in this Notice supplements the filing extension to September 23, 2009, previously provided by the IRS on its public website.

III. Request for Public Comments

The Department of the Treasury is interested in receiving comments on the following issues affecting a person’s FBAR filing obligation.
The Department of the Treasury requests comments regarding when a person with signature authority over, but no financial interest in, a foreign financial account should be relieved of filing an FBAR for the account. For example, comments are requested regarding whether relief from filing would be appropriate if a person with a financial interest in the account has filed an FBAR.

The Department of the Treasury requests comments discussing in what circumstances the exception from FBAR filing currently available for officers and employees of banks and certain publicly-traded domestic companies might be expanded to apply to all officers and employees with only signature authority over, and no financial interest in, an employer’s foreign financial account, including circumstances in which an individual has been advised that an FBAR has been filed with respect to a foreign financial account for which that person has signature authority. The Department of the Treasury also requests comments discussing how the bank and publicly-traded company exception (including the requirement of notification that an FBAR was filed by a U.S. person with a financial interest in the account) might apply to officers and employees with only signature authority over accounts owned by clients of their employer.

The Department of the Treasury requests comments concerning when an interest in a foreign entity (e.g., a corporation, partnership, trust, or estate) should be subject to FBAR reporting. For example, comments are requested regarding the possibility of applying the principles of sections 1297 and 1298 (b) of the Internal Revenue Code to determine when an interest in a foreign entity should be subject to FBAR reporting. Comments are also requested regarding whether the passive asset and passive income thresholds of 50 percent and 75 percent, respectively, are appropriate and whether the tests should apply conjunctively.

The Department of the Treasury also requests comments on whether a U.S. person should be relieved from an FBAR filing requirement with respect to a foreign commingled fund in other circumstances, such as when filing would be duplicative of other reporting.
Interested persons should submit comments and suggestions with respect to the guidance on FBAR reporting in this Notice by October 6, 2009, to:

Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2009-62)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044

or hand deliver comments Monday through Friday between the hours of 8 a.m. and 4 p.m. to:

Courier’s Desk
Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2009-62)
1111 Constitution Avenue, N.W.
Washington, D.C. 20224

A copy of those comments should also be sent to:

Financial Crimes Enforcement Network
Department of the Treasury
P.O. Box 39
Vienna, VA 22183

Alternatively, the public may submit comments electronically via e-mail to the following address: Notice.Comments@irscounsel.treas.gov with a copy to ,  regcomments@fincen.gov. Respondents should include “Notice 2009-62″ in the subject line of any comment submitted.
All comments submitted by the public will be made available for public inspection and copying in their entirety.

IV. Effective Date

This Notice applies to FBARs (Form TD F 90-22.1) with respect to calendar year 2008 and prior calendar years.

V. Contact Information

For further information regarding the relief relating to signature authority, contact Terra-Lynn Zentara at (202) 283-7659 (not a toll-free call). For further information regarding foreign commingled funds, contact Joseph Henderson at (202) 622-3446 (not a toll-free call).

Swiss government thinking about the UBS settlement

The Swiss government is thinking about the proposed settlement in the UBS litigation.  (The settlement would have UBS disclose some names, but not the names of all of its 52,000-ish U.S. customers.  Convenient fig leaf for UBS and IRS.)

Reuters reports on Swiss cabinet meetings on this point.  From the article, we can see a hint of what is holding up the settlement:

Swiss media have said U.S.-Swiss talks have stalled on legal details on how to allow the transfer of some client data to Washington while respecting strict Swiss banking secrecy laws.

“It is not a problem that has to do with UBS, but rather with the legal procedure,” Finance Minister Hans-Rudolf Merz told Swiss television on Sunday, without going into details.

LENGTHY COURT APPEALS

According to Swiss newspaper NZZ am Sonntag, the U.S. wants guarantees that the so-called administrative assistance process, the legal framework under which bank client details can be transferred to the United States, will deliver the data, and quickly.

But Merz said on Sunday Switzerland was not prepared to introduce emergency measures to force the pace of the process.

Any transmission of such data from Switzerland to the U.S. would normally involves potentially lengthy court appeals, and the U.S. Justice Department is believed to be looking for ways to cut down on such delays.

Originally scheduled for July 13, the case against UBS is now set for court on August 17, but if the parties choose to delay further, the next available date would be September 21.

Berne already stretched its legal system in February when it forced UBS to quickly hand over 250 client names, bypassing the clients’ appeals, in order to settle criminal charges against the bank.

Read between the lines and you get the following:

• The decision to divulge names has already been made; and
• It is in UBS’s benefit to divulge names of its customers; but
• The only problem is how to square the circle justify the change in interpretation of Swiss bank secrecy laws so UBS can blurt out stuff that it couldn’t blurt out before; so
• UBS wants the Swiss government to hand out a fig leaf that it (UBS) can hide behind; and
• The Swiss government is saying, “I’m thinking, I’m thinking” much like the Jack Benny joke.

OK, class.  Here is today’s lesson.  Bankers cannot and will not follow through on their assurance of secrecy, and governments will be weasels whenever expedient for a politician’s career. You, the human, will get thrown under the bus.   All in the name of diplomatic relations and this quarter’s earnings per share.  Take control of your own life.

Evidence of IRS’s focus on identifying new banks

Yesterday I posted about the IRS strategy was in the FBAR amnesty process–a quest to identify other Swiss banks, then go after them hammer and tongs (Caution:  sound file) in order to squeeze names of U.S. taxpayers out of them or scare bank customers into voluntary disclosure.

Here’s evidence that the hunting strategy is indeed what the IRS is doing.  Source:  the Statement of Facts in the recent plea bargain between Jeffrey Chernick and the U.S. government.  Mr. Chernick has identified a smaller Swiss bank in his plea bargain (we don’t know the name of the bank).

Here is a key excerpt from the Statement of Facts, with the tell-tale information in bold:

SWISS BANK EXECUTIVE was a former UBS manager in the United States cross-border business and left UBS because of concerns over UBS’s entry into a Qualified Intermediary Agreement with the IRS. In or about approximately 2003, SWISS BANK EXECUTIVE convinced the defendant to invest a portion of his offshore assets with a smaller Swiss bank located in Zurich, SWISS BANK. SWISS BANK EXECUTIVE told the defendant that since SWISS BANK had no presence in the United States and had not entered into a Qualified Intermediary Agreement with the IRS, it was not subject to United States scrutiny and therefore could not be pressured by the United States government to disclose his identity and account information to United States authorities.

The theory behind this is pretty clear. The Bank of Nova Scotia had a similar beef with the U.S. government in the early 1980′s. The strategy (for taxpayers) became quite clear: if you are doing something manky, do it with a bank that has no physical contact at all with the United States. Otherwise the bank will be faced with a hard choice: save its Federally-issued charter to do business in the United States, or throw you in the ocean like so much chum to meet your fate in a maelstrom of swarming (tax) sharks. (Hey, how ’bout them metaphors?) And of course, at that point the President of the bank will invite you for a meeting which begins with him saying, “Sorry, chum, but I have no choice.” (Bad pun. I know. So sue me.)

Anyway. The point. What’s the point, Phil? The point is that the U.S. government now has specific information about another Swiss bank, extracted from Mr. Chernick as part of the plea bargain. Let’s see what the IRS can do with this information.

BONUS EXTRA FOR AFFICIONADOS!

Because I know you care, I am attaching a full copy of the Statement of Facts after the break.  This is so you can see how the end-game for a criminal tax evasion plea bargain looks like.

Click below to continue reading, or ignore it and continue with your day.  Jack Townsend parses the meaning of the plea bargain here and here. Read more…