Friday, June 29, 2012

Income from Certain Government Bonds not PFIC Income.

Notice 2012-45 This notice provides guidance regarding the treatment of certain government bonds for purposes of determining whether a foreign corporation is a passive foreign investment company (PFIC).

Section 1297(a) provides that a PFIC is any foreign corporation if 75 percent or more of its gross income for the taxable year is passive income or the average percentage of assets held by the corporation during the taxable year which produce passive income or which are held for the production of passive income is at least 50 percent.  Section 1297(b)(1) provides that passive income means any income which is of a kind which would be foreign personal holding company income as defined in section 954(c), subject to the exceptions of section 1297(b)(2).  Under section 1297(b)(2)(A), the term “passive income” does not include any income derived in the active conduct of a banking business by an institution licensed to do business as a bank in the United States or, to the extent provided in regulations, by any other corporation (active banking exception).

In Notice 89-81, 1989-2 C.B. 399, the Internal Revenue Service (IRS) and the Department of the Treasury (Treasury Department) described rules that would expand the active banking exception to certain foreign corporations not licensed to do business as a bank in the United States, and identified the types of banking activities that produce income excluded from passive income under the active banking exception.  In 1995, the IRS and the Treasury Department issued proposed regulations on the active banking exception.  Prop. Reg. §1.1296-4.

Recent economic conditions have resulted in a shift in the assets held by some non-U.S. financial institutions.  As a result of these conditions, certain financial institutions are holding government bonds at higher than historical levels.  These increased levels have raised an issue concerning the treatment of these financial institutions, and specifically the treatment of government bonds, under the PFIC rules.  

This notice announces that, solely for purposes of section 1297 and the taxable years provided in Section 4 of this notice, the income from Qualifying Government Bonds held by an Active Bank qualifies for the active banking exception.

This notice shall apply to taxable years of foreign corporations beginning in 2011, 2012, and 2013.  

California Franchise Tax Board (FTB) To Issue 475,000 Tax Levies for Delinquent Tax Debts

If you or your clients have tax problems and owe California State income taxes, the Tax Man Cometh! The California Franchise Tax Board (FTB) is collecting delinquent tax debts through the Financial Institution Record Match (FIRM) program. FIRM uses automated data exchanges to locate bank accounts held by Californians who have tax debts. The FIRM program will match records on a quarterly basis in order to collect tax debts from both individuals and businesses. No financial institution doing business within the state of California is exempt from participating in the program.

However, in rare cases temporary exemption or suspension of participation may apply. Banks that chose not to comply are subject to large fines each year. Accounts that are eligible for tax levies include checking and savings accounts, as well as mutual funds. FIRM is similar to the Financial Institution Data Match (FIDM) program, which is used to collect delinquent child support debt.
The FIRM program allows the FTB to use data obtained from banks to find assets and garnish bank accounts up to 100 percent of the amount owed. As of April, the FTB began to serve tax levies on the bank accounts of individuals who have delinquent balances, including penalties, interest, taxes and fees that have been identified through FIRM. With the help of the FIRM program, the FTB expects to issue 475,000 tax levies this fiscal year, a 75 percent increase from last year.

In order to avoid tax levies you or your tax lawyer should consider possible alternatives including installment agreements, offers in compromise and bankruptcies.

Data between FTB and FIRM can be exchanged in two ways. In the first method, information regarding open accounts is given directly to the FTB for the Board to match accounts with delinquent taxpayers. This method is only available to institutions that are unable to match the information against their own records. Institutions that do not qualify for the first method must match taxpayer information against their own records. Banks can choose to hire a third-party transmitter to aid in matching the data. Because the accuracy of the data is of the utmost importance, banks must verify matches from third-party services before submitting them to the FTB.

A 10-day holding period follows the issue of the tax levy to the bank. During this time, the taxpayer or a tax attorney on the taxpayer's behalf may negotiate the amount due or, if financial hardship is creating tax problems, discuss payment options. If the FTB levied an account in error, they will delay the garnishment while they verify the mistake and then issue a garnishment release notice. If the bank has already issued the payment, the Board will return the payment.

By Dennis N. Brager on June 27, 2012 3:43 AM   

IRS Says Foreign Financial Institutions Can Register for FATCA Participation Online

Foreign financial institutions (FFIs) that want to register to participate under the Foreign Account Tax Compliance Act can do so online.

The government tried to create a process that would make it easy for foreign banks to participate. Under the law, banks are required to report U.S.-owned accounts to IRS or face, in some cases, a 30 percent withholding tax.

In building an online system for foreign financial institutions to register as participating FFIs, the IRS has developed a flexible system that has the ability for the FFI to create accounts, choose login and passwords, and maintain the account once formed. Details on the online registration process are as follows:
  1. FFIs will register and enter an agreement (a certification, if a Registering Deemed-Compliant FFI) through an online registration system.
  2. Each FFI must select a FATCA Responsible Officer (RO).
  3. The RO may select Points of Contact (POCs) to help complete all aspects of the registration process except signing.    
  4. It is anticipated that there will be power of attorney procedures allowing the RO to delegate full FATCA registration duties (including signing) to another in-house individual.
  5. If it proves unworkable for the Responsible Officer (RO) or another in-house individual to register the FFI, it is anticipated there will be power of attorney procedures allowing the RO to delegate full FATCA registration duties (including signing) to certain U.S.-licensed tax professionals that are subject to our regulatory jurisdiction.
  6. FATCA registration is a user maintained account – it can be edited or modified by the user.
  7. The person signing the FFI agreement (or certification) must make an affirmative statement during the registration process that he or she has the authority to act for the FFI.
  8. Positive ID verification will be required for the individual who will sign the agreement/certification on behalf of the FFI (i.e. the RO or ATP).
  9. The person who will sign the agreement/certification will be issued a FATCA Individual identification Number (FIIN) following ID verification.
  10. IRS will closely monitor the account creation and FATCA registration process. 
If you have any questions regarding FATCA or FATCA compliance, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at or or Toll Free at 888-8TaxAid (888 882-9243).

Tuesday, June 26, 2012

IRS announced a plan to Help U.S. Citizens Overseas Become Compliant

WASHINGTON — The Internal Revenue Service today announced a plan to help U.S. citizens residing overseas, including dual citizens, catch up with tax filing obligations and provide assistance for people with foreign retirement plan issues.

"Today we are announcing a series of common-sense steps to help U.S. citizens abroad get current with their tax obligations and resolve pension issues," said IRS Commissioner Doug Shulman.

Shulman announced the IRS will provide a new option to help some U.S. citizens and others residing abroad who haven’t been filing tax returns and provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes. The newprocedure will go into effect on Sept. 1, 2012.

The IRS is aware that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs).  Some of these taxpayers have recently become aware of their filing requirements and want to comply with the law.

To help these taxpayers, the IRS offered the new procedures that will allow taxpayers who are low compliance risks to get current with their tax requirements without facing penalties or additional enforcement action. These people generally will have simple tax returns and owe $1,500 or less in tax for any of the covered years.

The IRS also announced that the new procedures will allow resolution of certain issues related to certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans).  In some circumstances, tax treaties allow for income deferral under U.S. tax law, but only if an election is made on a timely basis.  The streamlined procedures will be made available to resolve low compliance risk situations even though this election was not made on a timely basis.
Taxpayers using the new procedures announced today will be required to file delinquent tax returns along with appropriate related information returns for the past three years, and to file delinquent FBARs for the past six years. Submissions from taxpayers that present higher compliance risk will be subject to a more thorough review and potentially subject to an audit, which could cover more than three tax years.
The IRS also announced its offshore voluntary disclosure programs have exceeded the $5 billion mark, released new details regarding the voluntary disclosure program announced in January and closed a loophole used by some U.S. citizens.  See IR-2012-64 for more details.

Alternative FATCA Approach In Compliance Pacts with Switzerland & Japan

Switzerland and Japan have agreed to circumvent their own privacy laws to ease the implementation of the US Foreign Accounts Tax Compliance Act (FATCA) and in exchange the the Treasury Department entered into agreements with Switzerland and Japan to pursue a new alternative approach for compliance with FATCA. The U.S. government does not expect further models regarding FATCA to be proposed.

The Swiss Federal Finance Department said any refusal by Switzerland to implement FATCA would cause it major disadvantages. ‘The prohibitive withholding tax of 30 per cent on all payments from the USA, and the likely consequence that foreign financial institutions would terminate their business relationships with Swiss financial institutions in the medium term, would result in exclusion from the world's largest capital market,’ it said in a statement. Japanese banks also have substantial holdings of US securities.

Most FFIs would like to comply with the Act if they were able to so. However both countries - and many others too - have legislation forbidding banks to disclose exactly the kind of information that FATCA requires them to disclose. In Switzerland these laws are the traditional banking secrecy laws; in Japan they are personal data protection laws.

Both countries announced they had signed deals with the US under which these restrictive laws can be by-passed. Instead of reporting all client data direct to the US IRS, their financial institutions will be allowed to pass only a limited subset of client details to the IRS. The rest of the FATCA-required information will only be available to the IRS via a direct request to the Swiss or Japanese government.

The Swiss Banking Association welcomed this part of the agreement. The arrangements differ significantly from agreements the US Treasury Department is negotiating with Germany, France, Italy, Spain and the UK over FATCA. The difference is that the European proposals exempt the banks from dealing with the IRS at all - they simply fulfill their obligations by handing over agreed client information direct to their own governments, which is then automatically forwarded to the IRS.

As part of the Swiss-US model - which is not yet finalized in detail - Switzerland is also trying to get large classes of its financial institutions entirely exempted from FATCA. Moreover, it does not want its banks to have to report the names of ’recalcitrant’ US clients, or deduct US tax from their payments, or close their accounts. Instead the IRS would have to obtain this information through an intergovernmental administrative assistance request. A simplified method of client identification is also one of the Swiss government's negotiating aims.

The new alternative is a mixed alternative approach of a joint framework with France, Germany, Italy, Spain, and the United Kingdom for intergovernmental information sharing which would allow financial institutions in Switzerland and Japan to report directly to the IRS, with additional information supplied by their governments upon request.

Treasury said it is confident the new model represents a strong alternative to the country-to-country information sharing model announced earlier this year and said both models would boost FATCA implementation and international tax compliance.

As part of the agreement with Switzerland, that country is expected to make a legal change that would require financial institutions that are not otherwise exempt or deemed compliant under current FATCA rules to participate and enter into the agreements with the IRS or register their participation with the IRS to identify U.S. accounts and report information to the IRS.

The Treasury hopes to issue final regulations by this fall.

If you have any questions regarding FATCA, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at or or Toll Free at 888-8TaxAid (888 882-9243).

Monday, June 25, 2012

Three Tax Return Preparers Charged with Helping Clients Evade Taxes by Hiding Millions in Secret Accounts at Two Israeli Banks

Defendants Operated Return Preparation Businesses Located in 12 Locations Throughout the U.S., Including California, New York and Maryland David Kalai, Nadav Kalai and David Almog were indicted by a federal grand jury in the Central District of California and charged with conspiring to defraud the United States, the Justice Department and Internal Revenue Service (IRS) announced today. The superseding indictment, which was returned late yesterday, was unsealed following the defendants’ arrests.
According to the superseding indictment, David Kalai and Nadav Kalai were principals of United Revenue Service Inc. (URS), a tax preparation business with 12 offices located throughout the United States. David Kalai worked primarily at URS’s former headquarters in Newport Beach, Calif., and later at URS’s location in Costa Mesa, Calif. Nadav Kalai, who is David Kalai’s son, worked out of URS’s headquarters in Bethesda, Md., as well as URS locations in Newport Beach and Costa Mesa, Calif. David Almog was the branch manager of the New York office of URS and supervised tax return preparers for URS’s East Coast locations.

The superseding indictment alleges that the co-conspirators prepared false individual income tax returns which did not disclose the clients’ foreign financial accounts nor report the income earned from those accounts. In order to conceal the clients’ ownership and control of assets and conceal the clients’ income from the IRS, the co-conspirators incorporated offshore companies in Belize and elsewhere and helped clients open secret bank accounts at the Luxembourg locations of two Israeli banks, Bank A and Bank B. Bank A is a large financial institution headquartered in Tel-Aviv, Israel, with more than 300 branches across 18 countries worldwide. Bank B is a mid-size financial institution also headquartered in Tel-Aviv, with a worldwide presence on four continents.
As further alleged in the superseding indictment, the co-conspirators incorporated offshore companies in Belize and elsewhere to act as named account holders on the secret accounts at the Israeli banks. The co-conspirators then facilitated the transfer of client funds to the secret accounts and prepared and filed tax returns that falsely reported the money sent offshore as a false investment loss or a false business expense. The co-conspirators also failed to disclose the existence of, and the clients’ financial interest in, and authority over, the clients’ secret accounts and caused the clients to fail to file FBARs with the Department of the Treasury.
If convicted, each defendant faces a maximum of five years in prison and a maximum fine of $250,000. The charges contained in the indictment are only allegations. The defendants are presumed innocent and it is the government’s burden to prove guilt beyond a reasonable doubt.


Liechtenstein, an Alpine country of 36,000 people, has told American clients of the principality’s oldest bank that U.S. authorities have requested their account data as they widen a tax-evasion probe.

Accounts at Liechtensteinische Landesbank AG (LLB) that contained at least $500,000 at any time since the beginning of 2004 are covered by the information request, according to a letter dated May 31, 2012 sent to clients by the Liechtenstein’s tax authority. Liechtenstein facilitated the so-called group request from the IRS by amending the tax information exchange agreement with the United States in March 2012. Those affected by the U.S. request for information have the right to appeal, according to the letter.

The amendment that extends the period of applicability back to the tax year 2001 in the administrative assistance law with the U.S. is limited to 12 months from May 1, 2012.

The IRS requests information about accounts with a year end value of at least US$ 500,000 titled in the name of individual US tax payers or owned by non-US entities that have US beneficiaries. The request is limited to account that were opened on or after January 1, 2004 and accounts that were in existence on that date.

In the Liechtenstein group request, U.S. authorities are also targeting lawyers, accountants, financial advisers, asset managers and those responsible for professional “asset protection,” who “conspired with a U.S. taxpayer to commit U.S. crimes or provided assistance,” according to the letter.

LLB account holders have an opportunity to participate in the procedure to ensure that their rights are protected. Account holders need to inform the Liechtenstein tax authorities of their desire to participate in writing within 14 days of the receipt of the letter.

Should the tax authorities determine that the account of an account holder is covered by the IRS request, they have to inform the account holders (and trustees and representatives. The account holder has 14 days after receipt of the notice to challenge the release of banking information in Liechtenstein courts.

Those affected by the U.S. request for information have the right to appeal, according to the letter.

Landesbank declined to comment on whether the handover of account data under the group request would allow the bank to enter a deferred prosecution agreement.

Liechtenstein started to unwind secrecy after data stolen from LGT was used by Germany to prosecute tax evaders in 2008. Former Deutsche Post AG (DPW) Chief Executive Officer Klaus Zumwinkel was convicted of tax evasion and received a two-year suspended prison sentence plus a penalty of 1 million euros ($1.25 million).

Under pressure from the U.S., Germany and France, Liechtenstein said in March 2009 that it would conform with tax standards set out by the Organization for Economic Cooperation and Development to avoid being blacklisted as a tax haven.

For more information go to Businessweek.

Friday, June 22, 2012

Report Foreign Bank and Financial Account Information by June 30

If you or one of your clients has a bank or other financial account in a foreign country, or has signature authority over such an account, that client may be required to report the account using Form TD F 90-22.1 to the Treasury Department by June 30. Reporting of such accounts may be required, even if they do not generate any taxable income.

Form TD F 90-22.1 is not a tax form and should not be filed with any income tax return. It may be filed either electronically or on paper. However, requests for an extension of time to file this form cannot be granted. Details are on the FBARpage on

Tuesday, June 12, 2012

Draft of Form W-8BEN with FATCA Changes

The IRS released modified versions of draft Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, for individuals and entities.

The draft Form, now divided into W-8BEN and W-8BEN-E, is a pre-release, but as expected, it indicates changes to come for foreign financial institutions and withholding agents.

The new form reveals a foreign financial institution employment identification number (FFI-EIN) and a FATCA ID for participating FFIs and deemed-compliant FFIs. In order to protect taxpayer confidentiality, the IRS decided to issue entities the two different numbers to serve different roles.

The FFI-EIN will be used for filing purposes and the FATCA ID will be used for public verification purposes. A foreign tax identifying number will now also be required on Form W-8BEN.

According to KPMG, informal conversations with the IRS officials indicate future instructions will clarify how a beneficial owner is to complete the foreign tax identification number line as a resident jurisdiction that does not routinely use tax identification numbers and address a withholding agent’s due diligence concerning this line.

Draft forms W-8IMY are expected to be released by the end of the month.
If you have any questions regarding Form W-8BEN, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at or or Toll Free at 888-8TaxAid (888 882-9243).

Monday, June 4, 2012

US clients turned away by Singapore Banks due to onerous US tax laws

That is what some of the world's largest wealth-management firms are saying ahead of Washington's implementation of the Foreign Account Tax Compliance Act, which seeks to prevent tax evasion by Americans with offshore accounts.

HSBC, Deutsche Bank, Bank of Singapore and DBS all say they have turned away business.

"I don't open US accounts, period," said Ms Tan Su Shan, head of private banking at DBS, South-east Asia's largest lender, who described regulatory attitudes toward US clients as "draconian".

The 2010 law, to be phased in starting Jan 1 next year, requires financial institutions based outside the United States to obtain and report information about income and interest payments accrued to the accounts of American clients. It means additional compliance costs for banks and fewer investment options and advisers for all US citizens living abroad, which could affect their ability to generate returns.

The almost 400 pages of proposed rules issued by the US Internal Revenue Service (IRS) in February create "unnecessary burdens and costs", the Institute of International Bankers and the European Banking Federation said in an April 30 letter to the IRS, one of more than 200 submitted to the agency. The IRS plans to hold a hearing May 15 and could amend how and when some aspects of the rules are implemented. It cannot rescind the law.

Most of the hedge funds I know in Asia won't take American clients," said Mr Faber.

Bank of Singapore, the private-banking arm of Oversea-Chinese Banking Corp (OCBC), ranked strongest in the world for the last two years by Bloomberg Markets magazine, has turned away millions of dollars from Americans because it does not want to deal with the regulatory hassle, according to chief executive officer Renato de Guzman. The bank had US$32 billion (S$40 billion) under management as of the beginning of the year.

"It's too complex, too challenging," he said. "You probably should have a dedicated team to handle them or to understand what can be done or what cannot be done."

At industry meetings he attends in Singapore, not accepting US clients is "quite a prevailing sentiment", he added. There are 18 private banks operating in Singapore, including units run by UBS, Credit Suisse, Deutsche Bank and HSBC, he said.

"We have enough business in Asia, so we don't want to make our lives too difficult," Mr de Guzman said.

Asia has the world's fastest-growing number of people with more than US$1 million in investable assets, according to a report last year by Bank of America and Capgemini. Singapore is Asia's largest wealth-management centre, with US$512 billion in offshore assets in 2010, data compiled by the Boston Consulting Group show... BLOOMBERG