Friday, August 31, 2012

Switzerland must prepare for the possible Automatic Exchange of Bank Client Information

“Switzerland and its banking system should assume that in five to ten years when a foreign client comes and opens a Swiss bank account, his name, the date he opens the account and the bank’s name will be automatically transferred to his country’s treasury,” said Hildebrand. “The Swiss fiscal refuge is over.”

Hildebrand, who resigned as SNB chairman in January amid controversy over his wife’s currency trades, said he regretted what had happened.

In the interview the former SNB chairman also described the “terrible” period in October 2008 when the national bank was forced to bail out Switzerland’s largest private bank UBS with a multi-billion franc rescue package.

Hildebrand, who at the time was an SNB board director before he became chairman, said he felt “disgusted philosophically” that the state had had to intervene to save a private company.

In June 2012 following his resignation it was announced that Hildebrand had joined the world’s largest asset management company Blackrock, based in London where he will be looking after institutional clients in Europe, the Middle East, Africa and Asia.

If you have Unreported Income From Swiss Banks, contact the Lawyers at Marini & Associates, P.A. for a FREE Consultation at www.TaxAid.usor www.TaxLaw.msor Toll Free at 888-8TaxAid (888 882-9243).

Call US before Uncle Sam finds you!


New Filing Compliance Procedures for Non-Resident U.S. Taxpayers

We first posted this New Filing Compliance Procedures for Non-Resident U.S. on Tuesday, June 26, 2012 in our blog post entitled IRS announced a plan to Help U.S. Citizens Overseas Become Compliant and then we supplemented it with examples in our blog posts entitled
Tax amnesty offered to Americans in Mexico and Tax amnesty offered to Americans in Canada and now the IRS has a new webpage devoted to this option entitled New Filing Compliance Procedures for Non-Resident U.S. Taxpayers.

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), Form TD F 90-22.1. Some of these taxpayers have recently become aware of their filing obligations and now seek to come into compliance with the law.  

The Service is announcing a new procedure for current non-residents including, but not limited to, dual citizens who have not filed U.S. income tax and information returns to file their delinquent returns. This procedure will go into effect on Sept. 1, 2012.

Description of proposed new procedure:

While more details will be forthcoming, taxpayers utilizing the new procedure will be required to file delinquent tax returns, with appropriate related information returns, for the past three years and to file delinquent FBARs for the past six years. 

All submissions will be reviewed, but, as discussed below, the intensity of review will vary according to the level of compliance risk presented by the submission. For those taxpayers presenting low compliance risk, the review will be expedited and the IRS will not assert penalties or pursue follow-up actions. These taxpayers generally will have simple tax returns and owe $1,500 or less in tax for any of the covered years, IRS said.

Submissions that present higher compliance risk are not eligible for the procedure and will be subject to a more thorough review and possibly a full examination, which in some cases may include more than three years, in a manner similar to opting out of the Offshore Voluntary Disclosure Program.Instructions, Questionnaire to Be Issued by IRS on Streamlined Filing Compliance Procedures.

New instructions and a questionnaire are expected to be released Aug. 31 by the Internal Revenue Service for eligible nonresident U.S. taxpayers needing to catch up on overdue federal filing requirements under a recent streamlined filing procedure in the Service's Tax-Filing Compliance Program.

If you would like to avail yourself of this new Amnesty, 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).

Thursday, August 30, 2012

Switzerland & US Discuss Key Point for Possible FATCA Agreement!

Fatca and the model agreement signed with the EU’s largest economies have not been without critics, notably from the international group, Geneva-based American Citizens Abroad, and Canada, which has a large US citizen population (background from Canada’s Bankers Association).

Switzerland and the United States 21 June published a joint declaration containing key points for possible simplifications in implementing Fatca (report from GenevaLunch 22 June).

Bern says “the aim of the negotiations is to ensure an optimum framework for the Swiss financial industry with regard to the implementation of Fatca and strengthening of the financial centre strategy.” 

Behind those words about the Swiss financial centre lie concerns that Swiss banks could be heavily penalized for not complying with the new US rules because of Swiss banking laws that guarantee data privacy. The joint June declaration’s key points don’t mention banking secrecy, but rather Article 271 of the Swiss Criminal Code. 

Article 271 covers the criminal act of aiding and abetting a foreign government by providing information illegally. The new framework therefore theoretically protects Swiss banks from prosecution at home by allowing them to give agreed information to the US government without first passing it through the hands of the Swiss government. 

But negotiations are still needed to cover how, given Swiss bank privacy laws, a bank can automatically share information with the IRS and what exactly happens when a client is “recalcitrant” and refuses to sign papers giving the bank this right.”

If you have Unreported Income From Swiss Banks, contact the Lawyers at Marini & Associates, P.A. for a FREE Consultation at www.TaxAid.usor www.TaxLaw.msor Toll Free at 888-8TaxAid (888 882-9243).

Call US before Uncle Sam finds you!



Wednesday, August 29, 2012

IRS Releases Draft of Forms W-8EXP and W-8ECI

The IRS releases a draft Form W-8EXP. Little of substance is changed on the form, but it incorporates the "checkbox" approach to capacity first seen on the draft Form W-8ECI.

The IRS releases a draft revised Form W-8ECI. The Internal Revenue Service has eliminated a troublesome requirement that people authorized to sign some forms related to withholding and effectively connected income under the Foreign Account Tax Compliance Act certify that they have the authority to sign and in place of the capacity line is a simple checkbox where the signer certifies that he or she has the capacity to sign the form.

For more information, 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).



Fifth Amendment Does Not Apply to Offshore Banking Records

The Fifth Amendment privilege against self-incrimination does not apply to records that fall under the Required Records Doctrine, and a taxpayer who is the subject of a grand jury investigation into his use of offshore bank accounts cannot invoke the privilege to resist compliance with a subpoena seeking records kept pursuant to the Bank Secrecy Act, the U.S. Court of Appeals for the Seventh Circuit ruled Aug. 27 (In re Special February 2011-1 Grand Jury Subpoena DatedSeptember 12, 2011, 7th Cir., No. 11-3799, 8/27/12).

The records were sought as part of a grand jury's investigation of a taxpayer, known only as T.W., regarding his possible use of secret offshore bank accounts to avoid U.S. taxes.

The U.S. District Court for the Northern District of Illinois quashed the subpoena, agreeing with T.W. that the act of producing the records was testimonial and could result in T.W. incriminating himself.

The U.S. Court of Appeals for the Seventh Circuit joined the Ninth Circuit in holding that the required records exception to the Fifth Amendment privilege against self-incrimination applies to records of foreign bank accounts.

"Having determined that T.W.'s act of production privilege is not an obstacle to the Required Records Doctrine, we must decide whether the records sought under the subpoena fall within the Required Records Doctrine. In order for the Required Records Doctrine to apply, three requirements must be met: (1) the purposes of the United States inquiry must be essentially regulatory; (2) information is to be obtained by requiring the preservation of records of a kind which the regulated party has customarily kept; and (3) the records themselves must have assumed public aspects which render them at least analogous to public document. Grosso, 390 U.S. at 67–68 (emphasis added)."

"Recently, in a case nearly identical to this one, the Ninth Circuit held that records required under the Bank Secrecy Act fell within the Required Record Doctrine. In re M.H., 648 F.3d 1067 (9th Cir.2011) cert. denied, No. 11–1026, 2012 WL 553924 (U.S. June 25, 2012). In the Ninth Circuit's case, the court held that the witness could not resist a subpoena—identical to the one in this case—on Fifth Amendment grounds because the records demanded met the three requirements of the Required Records Doctrine. Id. We need not repeat the Ninth Circuit's thorough analysis, determining that records under the Bank Secrecy Act fall within the exception. It is enough that we find—and we do—that all three requirements of the Required Records Doctrine are met in this case."

Because the Required Records Doctrine is applicable, and the records sought in the subpoena fall within the doctrine, T.W. must comply with the subpoena.

This holding means that people who have foreign bank accounts can be forced to produce records that may prove that they have committed tax crimes, including failure to file FBARs, filing false tax returns, tax evasion, and conspiracy to defraud the U.S.

The Southern District of California, in the, has gone a step further by holding that even if the account holder does not have the records, he or she must go to the bank and request the records for the government. These decisions, while valid precedents, are limited to the Seventh and Ninth Circuits.

For more information on the IRS' Offshore Enforcement Program, FBAR penalties, and the IRS’s Offshore Voluntary Disclosure Program (OVDP), 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, August 28, 2012

IRS Rules - May adopt a CAP Decision as part of a CDP Hearing

The IRS Office of Chief Counsel said in a program manager technical advice memorandumPMTA2012-14, that a settlement officer may adopt the CAP decision as part of the determination in the CDP hearing but is not required to do so.
1) Section 6330(c)(4) does not preclude consideration during a CDP hearing of an issue that was raised and considered in a CAP hearing when the CAP and CDP hearings were requested simultaneously. The Settlement Officer may adopt the CAP decision as part of the determination in the CDP hearing.

2) There is no legal requirement that a taxpayer be given the right to a CAP hearing for a proposed levy when a CDP hearing is requested at the same time. The IRS Office of Appeals ("Appeals") may decide for policy reasons not to provide a CAP hearing for a proposed levy when the taxpayer has requested a CDP hearing about the same proposed levy.

The taxpayer may make simultaneous requests for CAP and CDP review when the Service’s collection action is a NFTL filing or levy. Under CAP, Appeals’ administrative decision is final and the review is limited to the specific collection action proposed or taken. See IRM Under CDP, Appeals’ determination is subject to judicial review and the scope of Appeals’ review is broader. See I.R.C. § 6330(c), (d); IRM

For example, a taxpayer may, with certain exceptions, challenge the existence or amount of his or her underlying tax liability in a CDP hearing. See I.R.C. § 6330(c)(2)(B). A taxpayer may not challenge the amount of his or her liability in a CAP hearing. See IRM

A taxpayer may request a CAP hearing at the same time as a CDP hearing request in order to receive an expedited review, generally five days. See IRM CDP consideration by contrast will generally take longer.

The more expedited review provided by CAP may be desirable, for example, when a NFTL filing is interfering with a transaction or a levy causes the taxpayer economic hardship, and the taxpayer wants the NFTL withdrawn or the levy released as quickly as possible.

Consequently, many taxpayers will request CAP consideration at the same time as their request for a CDP hearing.

If you have a Tax Lein or Tax Levy, 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).

Doctor Convicted for Hidding $8 Million in Secret Offshore Accounts in India & HSBC

Acccording to the DOJ - A jury convicted Arvind Ahuja yesterday on federal tax charges stemming from his failure to disclose offshore bank accounts maintained in India and the Bailiwick of Jersey, the Justice Department and Internal Revenue Service (IRS) announced. Trial began on Aug. 15, 2012 before U.S. District Judge Charles N. Clevert, Jr., in Milwaukee. Ahuja, a prominent neurosurgeon in Milwaukee, was convicted of one count of filing a false 2009 individual income tax return and one count of failing to file a Report of Foreign Bank and Financial Accounts (FBAR).

According to the evidence presented at trial, Ahuja transferred millions of dollars from bank accounts in the United States to undeclared bank accounts located in India at HSBC bank. Ahuja invested the funds in these accounts in certificates of deposit, which earned more than $2.7 million in interest income during the years 2005 through 2009.

Ahuja also maintained an HSBC bank account in the Bailiwick of Jersey, a British Crown dependency located in the Channel Islands off the coast of Normandy, France. Ahuja used credit and debit cards linked to this account to pay personal expenses while on trips to London. Ahuja managed his offshore accounts with the assistance of bankers who worked at an HSBC India representative office in New York.

The evidence established that for tax year 2009, Ahuja filed a false tax return with the IRS that failed to report the interest income earned on his certificates of deposit at HSBC India, and failed to report he had signature authority over bank accounts located in India and Jersey. Ahuja also failed to file an FBAR for 2009 to report his offshore accounts to the IRS. Ahuja?s accountant testified that Ahuja never disclosed the existence of his offshore accounts during the preparation of his tax returns.
Sentencing is scheduled for Jan. 18, 2013.

"This prosecution reflects the continuing commitment of the United States Department of Justice, including my office and the Tax Division, to identify, investigate and prosecute individuals who fail to abide by well-established obligations to report and pay on their tax indebtedness", said James L. Santelle, U.S. Attorney for the Eastern District for Wisconsin.

This case is a warning to individuals who still think they can use offshore bank accounts to commit tax crimes, said John A. DiCicco, Principal Deputy Assistant Attorney General for the Justice Department's Tax Division.

If you have Unreported Foreign Bank Account Income, 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, August 27, 2012

Tax Evasion Potential of Foreign Parent Groups primarily operating in U.S. Analyzed by GAO

A new report by the Government Accountability Office (GAO) has analyzed the prevalence of, and potential tax advantages or abuse stemming from, foreign-parented corporate groups with U.S. subsidiaries that conduct the majority of their worldwide operations in the U.S.
Although information on the subject was limited, GAO concluded that this structure may provide an advantage because foreign-controlled domestic corporations (FCDC ) and their foreign parents may not be subject to the anti-deferral rules applicable to U.S. parent corporations and their foreign subsidiaries. 
The FCDC ownership structure could provide a tax avoidance or evasion advantage relative to a structure where U.S. parents own foreign subsidiaries. According to IRS officials, the FCDC structure could confer a tax advantage because certain rules that can limit potential abuse by U.S. parent companies and their foreign subsidiaries may not apply to FCDCs and their foreign parent companies.
These rules (called anti-deferral rules) make immediately taxable to U.S. corporations certain types of income such as interest, rents, and royalties of their foreign subsidiaries. These types of income tend to be easily movable from one taxing jurisdiction to another and hence more amenable to transfer pricing abuse.
The standard to be applied is that of a taxpayer dealing at arm's length with an uncontrolled taxpayer. The arm's length result of a controlled transaction must be determined under the method that provides the most reliable measure of an arm's length result.

The GAO states in its report that a multinational corporate group, whether U.S.-owned or foreign-owned, can generally shift income to subsidiaries in low-tax countries to avoid or evade U.S. taxes, even if the majority of their economic activity is in the U.S. However, use of a foreign-controlled domestic corporation (FCDC) structure can provide a tax avoidance or evasion advantage over structures where U.S. parents own foreign subsidiaries.

GAO observed that many corporate groups with U.S. owners achieve the FCDC structure by forming a new foreign corporation in a low-tax country that becomes the owner of the corporate group. This transaction is known as an “inversion,” and it is typically used to reduce the group's overall tax liabilities. Foreign ownership can also occur via takeovers or mergers by foreign corporations, foreign corporations with U.S. subsidiaries incorporating overseas at the onset, or foreign corporations expanding their operations and establishing new subsidiaries in the U.S.

The primary advantage of the FCDC structure is that, unlike U.S. parent companies and their foreign subsidiaries, the anti-deferral rules generally don't apply to an FCDC structure. Rather, the anti-deferral rules only apply to an FCDC if it is also the owner of a CFC, or to the foreign parent of an FCDC if the foreign parent is itself a CFC.

However, with respect to tax evasion through transfer pricing abuse, FCDC structures don't provide any particular advantage since they are subject to the same rules as U.S. corporations with foreign subsidiaries.

GAO emphasized that data on foreign-owned but essentially U.S.-based corporate groups was extremely limited, and noted that it was unable to describe how they came to adopt this structure “without basic information.” GAO stated the Form 5472 doesn't provide information from which GAO can ascertain the percentage that a group's business in one particular country represents of its worldwide business, and it further doesn't contain information on intermediary parties to an FCDC structure. Form 5472 could, however, be revised to better identify and understand FCDCs. 

If you Need Structuring Advice for US In-Bound Sales & Services, 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).



Friday, August 24, 2012

Reliance on Accountant May Provide Reasonable Basis to Avoid Penalty for Failure to File Foreign Trust Form

A district court has denied IRS's motion for summary judgment in a case dealing with the Code Sec. 6677 penalty for failure to file Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. The court concluded that there was a genuine issue of material fact about whether the taxpayer's accountant provided him with advice on which he reasonably relied in not filing the form.

If you have been unjustifiably Assessed a Tax Penenalty, 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).


United States District Court, M.D. Florida, Tampa Division.

Brian Chivas JAMES, Plaintiff,


UNITED STATES of America, Defendant.

No. 8:11–cv–271–T–30AEP.

Aug. 14, 2012.

Dwaune L. Dupree, Kendall C. Jones, Sutherland, Asbill & Brennan, LLP, Washington, DC, Patricia A. Gorham, Sutherland, Asbill & Brennan, LLP, Atlanta, GA, for Plaintiff.

Michael W. May, U.S. Department of Justice, Washington, DC, for Defendant.


JAMES S. MOODY, JR., District Judge.


Plaintiff Brian Chivas James is a Sarasota physician specializing in pain management. In 2001, looking to protect his assets from potential malpractice claims, James proceeded to create an irrevocable foreign trust in Nevis, West Indies, with First Fidelity Trust Limited (FFT) as its trustee. James initially funded the trust in 2001 with a contribution of $192,000. He made additional contributions of $805,000 in 2002 and $607,146 in 2003.

Under 26 U.S.C. sec. 6048, the trust was required to file Form 3520–A, Annual Information Return of Foreign Trust with a U.S. Owner, which the trust timely filed for all relevant years. In addition, as owner of the trust, James was required to file IRS Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. James failed to file the required Form 3520 for the years 2001, 2002, and 2003.

James argues that his failure to file Form 3520 is the fault of his former accountant, George Famiglio. Famiglio had prepared James's personal and business taxes for a number of years, and James relied on Famiglio to properly oversee and advise him about the tax requirements of the foreign trust. According to James, he or his agent timely provided Famiglio with all appropriate trust documents and information, for each year in question, yet Famiglio failed to timely file Form 3520, and/or advise James that it should be filed. James further contends that he was personally unaware of the requirement to file Form 3520.

James argues that he acted prudently and with sound business judgment in engaging Famiglio to handle all issues related to the foreign trust, and that his accountant simply dropped the ball. Although James does not remember the details of most conversations he had with Famiglio, or any specific advice he received, he recalls that they "talked a pretty good bit" about the trust, and he believed at the time that "[Famiglio] had filed all the-everything required with the IRS." In short, James argues that he had "reasonable cause" in failing to file Form 3520 by reasonably relying on Famiglio.

The Government contends that James lacks reasonable cause. Noting that James was put on notice of the requirement to file Form 3520, the Government argues that his reliance on Famiglio cannot constitute reasonable cause. In 2006, the Government assessed penalties of $67,200, $281,750, and $230,000, for failure to file Form 3520 in years 2001, 2002, and 2003, respectively. James now sues for a refund of tax penalties, arguing that his failure to file Form 3520 was due to reasonable cause and not willful neglect.

The district court said it was clear that a taxpayer may reasonably rely on an expert's advice that no return is required; thus, if an expert erroneously advises him that no return is required, or erroneously advises him that it can be filed beyond the due date, reasonable cause may be found. The court pointed to these factors in deciding that there was a genuine issue of material fact about whether Famiglio provided Dr. James with advice upon which the latter reasonably relied:

  • Dr. James timely provided all required trust forms to Famiglio and relied on Famiglio to advise him on all matters related to the trust;
  • Famiglio advised him on at least some trust matters (for example, he advised on how to report loans from the trust for tax purposes and that the trust loans did not result in taxable income);
  • Dr. James relied on Famiglio to advise him about making the appropriate filings for the trust, but Famiglio failed to so advise him; and
  • Dr. James, based on his conversations with Famiglio, believed that he had filed all required forms.

In addition, the court pointed out that Famiglio prepared James's personal tax returns. On Schedule B of his Form 1040 tax returns, Famiglio answered “no” to the question asking whether the taxpayer received a distribution from, or was the grantor of or transferor to, a foreign trust. The court said that answering “no” to this question could be construed as Famiglio providing advice that Dr. James need not file Form 3520, advice upon which James could have potentially reasonably relied.

As a result, the court denied IRS's motion for summary judgment.
 James v.U.S., 2012 WL 3522610 (M.D.Fla., Slip Copy, Aug. 14, 2012).

Thursday, August 23, 2012

US Decrypts Swiss Bank Data - Swiss Privacy Regulator Orders Banks to Stop Information Transfer to the US - Swiss Reaction to US Detention of Banker’s Children

Earlier this month, a Swiss bank employee's two children were detained on arrival in the US on a visit to their grandparents, and questioned for several hours about their father's whereabouts. The incident has prompted Switzerland's data protection watchdog to forbid banks to pass any more employee information to the American authorities.

Hanspeter Thür has written to several banks to determine what data has already been transferred to the US Department of Justice and how they justified including telephone numbers and written correspondence.

“We have informed them that we are opening an analysis to verify the legality of the data transmitted to the US,” Thür told the Tages Anzeiger on Wednesday. “Until we have the results, we have demanded that no further bank employee data be sent to the US.”

In April, the Swiss government authorized some banks to transfer records after the US threatened to open criminal proceedings against them.

The data was supposed to be encoded to protect the identity of individuals, but it has since come to light that key information has been pieced together to reveal the names of client advisors and other bank employees.

Dozens of bank workers have sought legal advice, resulting in test cases being launched against the banks involved, the government and the Financial Market Supervisory Authority.

The Swiss Federal Prosecutor’s Office announced on Monday it had dismissed one case, saying there was nothing to indicate any laws had been broken.

Defending the government's April decision to allow the data transfer, Finance Minister Eveline Widmer-Schlumpf told the Tribune de Genève newspaper it was the only way to avoid "destroying workplaces".

If you have Criminal Exposure as a Swiss Bank Employee, contact the Lawyers at Marini & Associates, P.A. for a FREE Consultation at or or Toll Free at 888-8TaxAid (888 882-9243).

Call US before Uncle Sam finds you!



Wednesday, August 22, 2012

Bond in lieu of Notice of Federal Tax Lien

Office of Chief Counsel

Internal Revenue Service



Release Date: 8/3/2012

CC:PA:04 :DSkinner


UILC: 7101.00-00


: April 13, 2012


: Michael R. Fiore

Associate Area Counsel (Boston, Group 2)

(Small Business/Self-Employed)


: Mitchel S. Hyman

Senior Technician Reviewer, Branch 3

(Procedure & Administration)


: Bond in lieu of Notice of Federal Tax Lien

This Chief Counsel Advice responds to your request for assistance. This advice may

not be used or cited as precedent.


Whether it is appropriate for the Service to accept a collateral agreement and bond in

lieu of the Service’s filing a Notice of Federal Tax Lien (NFTL)?


Credit Suisse & Wegelin Client Pleads Guilty to FBAR Violation.

An 83-year-old Massachusetts man who held Swiss bank accounts at Credit Suisse Group AG (CSGN) and Wegelin & Co. pleaded guilty to hiding $5.7 million from U.S. tax authorities.

Jacques Wajsfelner admitted in federal court in Manhattan that he failed to file Foreign Bank and Financial Accounts Reports. He will pay civil penalties of $2.84 million and restitution of $419,940 and under advisory guidelines, he faces 30 months to 37 months in prison at sentencing on Dec. 20.

Wajsfelner’s former Swiss adviser, Beda Singenberger, was indicted last year on a charge of conspiring to help more than 60 U.S. taxpayers hide $184 million from the Internal Revenue Service in offshore accounts.

Wajsfelner admitted that he held an account in his own name at Credit Suisse in 1995, and Singenberger helped him open one there in 2006 in the name of Ample Lion Ltd. At the end of 2007 the account held almost $5.7 million, court records show.

If you have have Unreported Income From a Foreign Bank, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax and/or Criminal Consultation at or or Toll Free at 888-8TaxAid (888 882-9243).



Business Week


IRS' New Increased Focus on Tax Information Reporting & Withholding

Tax information reporting and withholding requirements are rapidly expanding, including an increased focus on U.S. source income for foreign persons by the Internal Revenue Service, Deloitte Tax LLP said in a report made public Aug. 21.

This change signals a new direction in the government's focus on tax compliance, Deloitte said. Taxpayers now are confronted with a variety of new reporting responsibilities, including those required under the Foreign Account Tax Compliance Act, Deloitte said.

“The information reporting compliance environment has changed,” the report stressed, noting that in the past, IRS enforcement efforts focused less on information reporting compliance than on income tax compliance.

Accordingly, many companies did not devote extensive resources to compliance in the information reporting area, Deloitte said.

But this has changed. “The IRS and Treasury Department are now firmly focused on the payment and reporting of income paid by companies to U.S. recipients on a worldwide basis,” the report said.

If you have any Tax Information Reporting or Withholding questions, 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).


Limited Power of Appointment Not Foolproof In Avoiding Completed Trust Gifts

Using a donors' testamentary limited power of appointment is no longer a foolproof way of guaranteeing that a transfer to a trust will not be a completed gift in the eyes of the Internal Revenue Service, Bessemer Trust officials said Aug. 21 at an American Bar Association Real Property, Trust, and Estate Law Section teleconference.

Until IRS clarifies a Feb. 24 memorandum in which it determined that a gift was complete, even though the grantor had retained a power of appointment exercisable at his or her death, donors are in danger of making gifts that IRS says are taxable, the officials said.

In chief counsel advice memorandum (CCA201208026), IRS said donors made completed gifts of term interests in a trust upon their transfer of property to the trust, and their retained testamentary limited powers of appointment relate only to the trust remainder.

Under the trust agreement, the Settlors retained testamentary limited powers of appointment, presumably with the intent that these retained powers would render contributions to the trust incomplete under Treas. Reg. § 25.2511-2(b), and thus not subject to immediate gift taxation. The Settlors then commenced funding the trust each year with interests in a family entity (the nature of which is not specified in the Memorandum) in amounts equal to the couple's annual gift tax exemption amounts with respect to the trust beneficiaries.

The Memorandum, however, concludes that, under established case law, a testamentary power of appointment relates only to the remainder of the trust and not to the interest held for the benefit of the current beneficiaries. As a result, each gift to the trust has to be thought of as consisting of two parts, a current interest (which is complete for gift tax purposes) and a remainder interest (which is incomplete for gift tax purposes).

In this case, the value of the gift of the current interest is equal to the entire fair market value of the transferred property, for two reasons: (1) since the Trustee of the trust has the power to terminate the trust at any time by distributing all of the principal to one or more of the current beneficiaries, the present value of any remainder interest is negligible and (2) because the incomplete gifts of the remainder interests are not "qualified interests" under the special valuation rules of § 2702, the value of the retained interest is treated as zero.

As a result of this analysis, practitioners wishing to ensure that a gift is incomplete should not rely on a retained testamentary power and should make certain that the grantor is also given an applicable lifetime power, such as a lifetime limited power of appointment or a power to veto trust distributions.

The Memorandum concludes that the beneficiaries have no means of enforcing their withdrawal rights under state law, since the Other Forum is not bound by state law and no beneficiary would be willing to petition the state court for relief at the risk of terminating his or her beneficial interest in the trust. Because these withdrawal rights are therefore deemed unenforceable, the Settlors were not allowed to use their annual gift tax exemption amounts to shield any portion of their
contributions to the trust.

If you have Trust & Estate Planning needs, 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, August 21, 2012

Former UBS Client Sentenced to Federal Prison for Failing to Report $4 Million in Swiss Bank Accounts

Willful failure to file a Form TD F 90-22.1, or Foreign Bank and Financial Accounts Report, more commonly known as an FBAR is a criminal violation of the Bank Secrecy Act. Luis A. Quintero, a former UBS Client, found that out first hand when he was sentenced recently to four months imprisonment.

Luis A. Quintero, a resident of Miami Beach, Florida, was sentenced July 24, 2012 by U.S. District Judge Federico A. Moreno to:

  • Four (4) months in federal prison for willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR), in violation of Title 31, United States Code, Sections 5314 and 5322(a). 
  • Quintero was also sentenced to three (3) years of supervised release with 250 hours of community service, and a $20,000 criminal fine. and
  • Quintero also paid a $2 million civil penalty for the FBAR violation.

Luis A. Quintero, a resident of Miami Beach, Florida, was sentenced July 24, 2012 by U.S. District Judge Federico A. Moreno to four (4) months in federal prison for willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR), in violation of Title 31, United States Code, Sections 5314 and 5322(a).

Quintero was also sentenced to three (3) years of supervised release with 250 hours of community service, and a $20,000 criminal fine.

Quintero also paid a $2 million civil penalty for the FBAR violation.

According to court documents and statements made in court, in October 2004, Quintero caused two offshore corporations to be formed, which Quintero then used to open accounts at UBS AG, a bank in Switzerland. The companies were Murano Development Corp (Murano), incorporated in the British Virgin Islands, and Credimax Corporation, S.A. (Credimax), incorporated in the Republic of Panama. Quintero was listed as the beneficiary of the Murano and Credimax accounts. The total aggregate value in these UBS accounts as of December 31, 2006 was $4,005,618.

According to documents filed with the court, from 2005 through 2007, Quintero used the Murano and Credimax UBS accounts to conduct financial transactions. For example, Quintero caused a business customer in the U.S. to send $314,000 to the Credimax UBS account. Quintero also caused the transfer of approximately $2.4 million from the UBS Swiss accounts to the accounts of U.S. corporations that Quintero controlled.

Quintero knew that he was required to file an FBAR for foreign bank accounts in which he had an interest. Among other things, Quintero had previously filed FBARs relating to bank accounts in Mexico in the name of one of Quintero’s U.S. companies.

Mr. Ferrer and Assistant Attorney General Kathryn Keneally commended the investigative efforts of the IRS-CI agents involved in this case. This case is being prosecuted by Assistant U.S. Attorney Ana Maria Martinez and Trial Attorney Todd Ellinwood of the Tax Division.

In February of 2009, UBS entered into a deferred prosecution agreement under which the bank admitted to helping U.S. taxpayers hide accounts from the IRS. As part of the agreement, UBS provided the United States with the identities of certain United States customers.

United States citizens who have a financial interest in, or signature authority over, a financial account in a foreign country with an aggregate value of more than $10,000 are required to file with the United States Treasury a Report of Foreign Bank and Financial Accounts on Form TD F 90-22.1 (“the FBAR”). U.S. citizens are also required to disclose the existence of such accounts on their individual income tax returns.

If you have have Unreported Income From a Foreign Bank, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax and/or Criminal Consultation at or or Toll Free at 888-8TaxAid (888 882-9243).

Recharacterization of “Loan” to shareholder as Taxable Distribution from Corporation

The Court of Appeals for the Fifth Circuit, affirming the Tax Court, has concluded that the supposedly borrowed amount that the sole shareholder of a corporation received from a welfare benefit fund, in connection with a life insurance policy funded by the corporation, was taxable income to the shareholder and not a bona fide loan.

Whether a transaction constitutes a loan for income tax purposes is a factual question involving several considerations. The Fifth Circuit has held that the central inquiry in determining if a transaction is a bona fide loan for tax purposes is whether the parties intended that the money advanced be repaid. ( Moore v. U.S., (CA 5, 1969) 24 AFTR 2d 69-5024) In determining whether a distribution is a nontaxable loan, courts have analyzed the following seven objective factors:

  1. Whether the promise to repay was evidenced by a note or other instrument;
  2. Whether interest was charged;
  3. Whether a fixed schedule for repayment was established;
  4. Whether collateral was given to secure payment;
  5. Whether repayments were made;
  6. Whether the borrower had a reasonable prospect of repaying the loan and whether the lender had sufficient funds to advance the loan; and
  7. Whether the parties conducted themselves as if the transaction was a loan.

Frederick D. Todd, a practicing neurosurgeon, was employed by his wholly owned corporation, Frederick D. Todd, II, M.D., P.A. (Corporation). He was also its director and president. Corporation employed several other individuals as well. Corporation became a member of the American Workers Master Contract Group (AWMCG), which represented it in labor negotiations with the union that represented Corporation's employees. Under a labor agreement AWMCG negotiated, Corporation would provide its employees with a death benefit only (DBO) plan organized through a welfare benefit fund established between AWMCG and the union. The welfare benefit fund, the American Workers Benefit Fund (AWBF), was later succeeded in a merger by the United Employees Benefit Fund (UEBF), another welfare benefit fund. AWBF's obligation to pay a death benefit ceased if Corporation's covered employee was voluntarily or involuntarily terminated or retired; if Corporation ceased making contributions; or if the master contract between the union and the master contract group wasn't renewed.

Todd obtained a $6 million universal life insurance on his life from Southland Life Insurance Co. (Southland) on behalf of AWBF. The annual premium on the policy was approximately $100,000. The policy was owned solely by AWBF to provide insurance to fund the death benefits owed by AWBF to Todd's wife. Corporation made yearly contributions to AWBF on Todd's behalf.

Under the UEBF trust agreement, the employer and employee trustees had discretionary authority to make loans to a plan participant on a nondiscriminatory basis upon application and written evidence of an emergency or serious financial hardship. Todd claimed “unexpected housing costs,” and obtained a $400,000 loan from UEBF. To effectuate the loan payment, UEBF reduced the face value of Todd's life insurance policy, rather than pay the 4.76% interest Southland would charge for the loan proceeds.

Todd signed a promissory note for the $400,000 loan some six months after the payment. Although the agreement required market rate interest to be paid on a loan, the note charged 1% interest, with loan payments to be made quarterly. In addition, the note included an alternative means of repayment (the “dual repayment mechanism”), under which, in the absence of quarterly payments by Todd, UEBF could instead deduct the outstanding loan balance from any payment or distribution due from UEBF to Todd or his beneficiary. Shortly thereafter, Corporation stopped making its annual contributions to UEBF on behalf of Todd's DBO plan, and UEBF ceased premium payments on the policy.

While Todd argued that the $400,000 payment was nontaxable, IRS characterized this “loan” as a taxable distribution.

The Tax Court concluded that $400,000 distribution from UEBF didn't constitute a bona fide loan. (Todd, TC Memo 2011-123) In reaching this conclusion, the Court analyzed the seven factors used to determine if a bona fide loan exists. It found that five factors indicated that the parties didn't intend to establish a debtor-creditor relationship at the time the funds were advanced (Factors 1, 2, 3, 5, and 7), while one factor did (Factor 6), and one indicated a possible intent to do so (Factor 4).

  1. Presence of a note. Despite the requirements in their agreement, the debt wasn't contemporaneously memorialized when the money was distributed. Further, the terms of the trust agreement and note weren't followed: UEBF failed to charge a market rate of interest, and Todd failed to make quarterly payments;
  2. Interest rate. Todd was charged 1% interest rate by UEBF on the promissory note, lower than the market rate. In comparison, Southland charged a rate of 4.76% on a similar loan;
  3. Repayment schedule. UEBF didn't provide Todd with an amortization schedule reflecting quarterly payments until three months after the first payment was due under the note's terms, and the note wasn't executed until almost four months after the first payment was due;
  4. Collateral. At the time of the purported loan, Todd didn't own the policy (UEBF did), had no access to the cash value of the policy, and had no rights to the proceeds from the policy. However, the Tax Court found that the dual repayment mechanism could serve as security between the parties for the promissory note. The dual repayment mechanism allowed UEBF to deduct the $400,000 distribution from the death benefit obligation;
  5. Repayments. As of the date of trial, Todd hadn't made any payments toward the purported loan. The Court rejected Todd's argument that the dual repayment mechanism served as a valid method of repayment (although it had accepted that it could serve as security). Because the purported benefits under the DBO plan were contingent on multiple future events (e.g., Corporation might cease participation in the UEBF plan, the covered employee might be terminated or retire, or the master contract group and the union might not renew their agreement), Todd couldn't reasonably rely on the death benefit as an alternative payment;
  6. Prospect of repaying. Todd earned a substantial living as a neurosurgeon, so there was a reasonable prospect of his repaying the purported loan; and
  7. Parties' conduct. Neither UEBF nor Todd conducted themselves in a manner indicating that the distribution was a loan. Neither strictly abided by the note's terms. There was no inquiry into the hardship justifying the loan. The interest rate was below market. No quarterly payments were made. UEBF never attempted collection when quarterly payments weren't made.
In light of the post hoc note execution and the fact that Todd never repaid any of the purported loan (despite his clear means to do so), the Fifth Circuit couldn't find that the Tax Court clearly erred in concluding that the $400,000 payment wasn't a bona fide loan. While the Court recognized that Todd and UEBF executed a note and payment schedule, the fact that the note and schedule were only adopted after the fact—in contravention of UEBF policies—suggested the possibility that doing so was merely a formalized attempt to achieve the desired tax result despite lacking in necessary substance.

If you need Defendable Tax Planning, 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).