On Tuesday, June 18, 2013, we posted DOJ Requests Identification of US Depositors in Bank Weglin - Time To Come Clean? where we discussed that the US Department of Justice has submitted another administrative assistance request to the Swiss authorities, this one demanding the identification of American clients of the private bank Wegelin who were beneficiaries of asset management companies between 2002 and 2012. Two weeks previous to this Bank Wegelin Request, the private bank Julius Baer was also notified that it was subject of a similar request by Washington.
U.S. authorities have more than a dozen banks under formal investigation, including Credit Suisse, Julius Baer, the Swiss Branch of HSBC, Pictet and local government-backed Zuercher Kantonalbank and Basler Kantonalbank.
The US government agency for tax collection and tax law enforcement has been the driving force behind the legal enquiries, while the US justice department has now taken over the settlement with Swiss banks suspected of violating US law.Now on June 19, 2013, the Swiss Parliament's lower house voted 123 to 63 against debating a draft law which is aimed to protect the country's banks from criminal charges in the United States for helping wealthy Americans evade tax, effectively killing the law, even though the upper house had confirmed its support earlier that day.
The Swiss government has warned that the bill's failure could prompt impatient U.S. prosecutors to indict banks, though it could still use an executive order to allow them to hand over data to try to avoid criminal charges.
"Switzerland must not take the risk of a further indictment of a bank lightly," the Swiss Bankers Association said in a statement.
According to a recent the U.S. Government Accountability Office (GAO) report, more than 10,000 taxpayers showed signs of having avoided offshore penalties by making “Quiet Disclosures” of foreign bank accounts for tax years 2003 through 2008, a period for which the IRS has detected several hundred quiet disclosures.
The IRS stated that they will audit Taxpayers who file amended or late return with income from Foreign Bank Accounts and in FAQ #16 they state:
"The IRS is reviewing amended returns and could select any amended return for examination. The IRS has identified, and will continue to identify, amended tax returns reporting increases in income. The IRS will closely review these returns to determine whether enforcement action is appropriate. If a return is selected for examination, the 27.5 percent offshore penalty would not be available. When criminal behavior is evident and the disclosure does not meet the requirements of a voluntary disclosure under IRM 188.8.131.52, the IRS may recommend criminal prosecution to the Department of Justice."
However, many have been wondering whether the IRS will pursue examinations of "Quiet Disclosures" of taxpayers residing in the United States in some manner.
Now these Taxpayer's have their answer: on June 11, 2013, the U.S. government filed a Complaint to collect multiple civil FBAR penalties in the amount of $3,488,609.33 previously assessed against Carl R. Zwerner of Coral Gables, Florida for his alleged failure to timely report his financial interest in a foreign bank account, as required by 31 U.S.C. § 5314 and its implementing regulations. See United States v. Carl R. Zwerner, Case # 1:13-cv-22082-CMA (SD Florida, June 11, 2013).
According to the Complaint, from 2004 through 2007, Mr. Zwerner, a U.S. citizen, had a financial
interest in an account at ABN AMRO Bank in Switzerland (hereinafter, “the Swiss bank account”). The Complaint alleges that the balance of the Swiss bank account from 2004-2007 was at all times greater than $10,000 and that, as such, on or before June 30, 2005, 2006, 2007, and 2008, Mr. Zwerner was required to file an FBAR reporting his financial interest in the Swiss bank account for each year from 2004, 2005, 2006, and 2007, respectively. However, the Complaint also asserts that prior to October 2008, Mr. Zwerner had never reported his financial interest in the Swiss bank account on an FBAR, nor had he reported income he earned from that account on his federal income tax returns.
The Complaint in Zwerner further alleges that on or about October 13, 2008, Mr. Zwerner filed a delinquent FBAR reporting his financial interest in the Swiss bank account during 2007, along with an amended income tax return for 2007; on or about March 27, 2009, Mr. Zwerner filed amended income tax returns and delinquent FBARs for 2004, 2005, and 2006. The basis of the Complaint is that Mr. Zwerner’s alleged failure to timely report his financial interest in the Swiss bank account for 2004-2007 was willful. Apparently, Mr. Zwerner did not hold the Swiss bank account in his own name. The Complaint alleges that from 2004 to 2006 he held the account in the name of any entity called the Bond Foundation and that, in January 2007, he transferred the account to an entity called the Livella Foundation. However, the Complaint asserts that at all times, however, Mr. Zwerner was the beneficial owner of the account.
According to the Complaint, Mr. Zwerner’s original tax returns for 2004 to 2007 did not report any income earned from the Swiss bank account; that the first time he reported such income was when he amended those returns; and that Mr. Zwerner represented on Schedule B of his original tax returns for those years that he did not have an interest in a foreign financial account. The Complaint asserts that Mr. Zwerner “expressly represented to the accountant who prepared his original tax returns for 2006 and 2007 that he had no interest in or signature authority over a financial account in a foreign country.” Further, it asserts that in a “letter dated August 9, 2010, Mr. Zwerner admitted to the IRS that he was aware that he should have reported both the existence of the account and the income he earned from it.”
The government carries the burden of proving willfulness into the courtroom. Taxpayers should carefully review the recent court decisions in United States v. Williams, No. 10-2230 (4th Cir. 2012) and United States v. McBride, No. 2:09-cv-00378 (D. Utah 2012) on the issue of determining “willfulness” for assertion of the more significant “willful” FBAR penalties (of up to 50% of the account balance, per year). Although the underlying facts in each case were not the best, the courts might not lightly view those with considerable financial resources who fail to inquire about their potential reporting requirements associated with various interests in foreign financial accounts. The Internal Revenue Manual suggests that “willfulness may be attributed to a person who has made a conscious effort to avoid learning about the FBAR reporting and recordkeeping requirements.” However, the willfulness determination should be based on the actual facts and the context in which statements are made (or not) rather than assertions in a legal pleading.
The Complaint alleges that due to Mr. Zwerner’s willful failure to file FBARs reporting his financial interest in the Swiss bank account during 2004-2007, a delegate of the Secretary of the Treasury of the United States assessed penalties against him under 31 U.S.C. § 5321(a)(5) in the amount of 50% of the balance of his account at the time of the violations for each year, as follows: (a) 2004 – $723,762, assessed on June 21, 2011; (b) 2005 – $745,209, assessed on August 10, 2011; (c) 2006 – $772,838, assessed on August 10, 2011; and (d) 2007 – $845,527 assessed on August 10, 2011. According to the Complaint: (a) on June 21, 2011, a delegate of the Secretary of the Treasury of the United States gave notice of the penalty assessment for 2004 to Mr. Zwerner and made demand for payment thereof; (b) on September 8, 2011, a delegate of the Secretary of the Treasury of the United States gave notice of the penalty assessments for 2005-2007 to Mr. Zwerner and made demand for payment thereof; (c) despite the notices and demands for payment, Mr. Zwerner did not pay the penalties assessed against him. As of June 6, 2013, the Complaint alleges that Mr. Zwerner owes the United States $3,488,609.33 in penalties assessed under 31 U.S.C. § 5321, including interest and other additional amounts which accrued and continue to accrue as provided by law.
The Excessive Fines Clause of the Eighth Amendment and relevant Supreme Court case law support a conclusion to the effect that a civil penalty or forfeiture is unconstitutional if the penalty or forfeiture is at least in part “punishment” and such punishment is grossly disproportionate to the conduct which the penalty is designed to punish. The touchstone of the constitutional inquiry under the Excessive Fines Clause is the principle of proportionality – the amount of the penalty must bear some relationship to the gravity of the offense that it is designed to punish.
The US Department of Justice has submitted another administrative
assistance request to the Swiss authorities, this one demanding the
identification of American clients of the private bank Wegelin who were
beneficiaries of asset management companies between 2002 and 2012.
The United States tax authorities have filed a request for legal assistance to identify former American clients of the private bank Wegelin who are suspected of tax dodging. It is the fourth such request against a Swiss financial institute.
Wegelin, which announced at the beginning of this year it would close its doors, on Friday confirmed reports that it had received notification by Switzerland’s Federal Tax Authorities to comply with the US request, based on a 1996 double taxation agreement.
A bank official added that Wegelin would submit the necessary information.
It is the fourth such demand against Swiss banks. The country’s two main banks, UBS and Credit Suisse, have also faced requests against a particular group of clients over the past few years.
Two weeks ago, the private bank Julius Baer was also notified that it was subject of a similar request by Washington.
The US government agency for tax collection and tax law enforcement has been the driving force behind the legal enquiries, while the US justice department has now taken over the settlement with Swiss banks suspected of violating US law.
Assessments against business taxpayers that have not filed required tax returns
have soared by nearly 60 percent according to the Treasury Inspector General for Tax
Administration's (TIGTA) report dated September 17, 2012. However, the Internal Revenue Service needs to improve internal controls
to ensure staff follow the correct procedures in documenting the reasons for
these assessments, according to this report.
found that in 10 percent of the cases, taxpayers were not provided a full
30 days to respond to proposed assessments prepared for them by IRS before the
returns were processed as Collection Field function assessments under tax code
Section 6020(b). This is a potential violation of taxpayers' rights.
determined that during Calendar Year 2008, taxpayers with stand-alone 6020(b)
assessments (assessments made in which the taxpayers had potential delinquent
no outstanding tax liabilities) were less compliant in subsequent years than
taxpayers without 6020(b) assessments.
more in-depth study of delinquent returns in which the for the Small
Business/Self-Employed Division. use of I.R.C. § 6020(b) authority was considered but not
used may be needed to betterunderstand these results. The IRS does not track subsequent
filing compliance when The IRS has the ability to prepare returns and I.R.C. §
6020(b) authority is
Forget To File Your Taxes?
Contact the Tax Lawyers at Marini & Associates, P.A.
It is not a secret that the two-year financial reviews the IRS is supposed to conduct on taxpayers who
are in an partial payment agreement (PPIA) haven't been happening.
Well, the Treasury Inspector General learned about this and has brought it to the attention of the IRS. The IRS vows it will now be investigating PPIA debtors more vigorously.
So for taxpayers in a PPIA, this means more two-year reviews, and a more thorough review of financials and the greater chance that the IRS will attempt to collect more from taxpayers who owe money to the IRS.
This should have an impact on the tax resolution industry and bankruptcy attorneys, as enhanced IRS investigations should drive taxpayers to seek protection.
There is no doubt the an IRS partial payment installment agreement (PPIA) can be an awesome IRS tax debt settlement tool. For the taxpayer, they can pay to the IRS what they can afford each month after reasonable living expenses. Meanwhile, the each month, the IRS tax debt gets close to extinction, thanks to the statute of limitations on IRS tax debt.
If you have a PPIA that was agreed to years ago, no may be a good time to review your other IRS tax debt settlement options. In particular:
Enough time may have elapsed on any personal tax debts to discharge with a Chapter 7 bankruptcy. Chapter 7 bankruptcy can completed wipe out your debt. Be sure to talk to a local tax bankruptcy expert in your area.
Or, it may be time to consider an Offer in Compromise. It is our experience that the Offer in Compromise units have been accepting Offers they would not have back in 2009. Our suspected reason: We don’t think the IRS even believes the economy will rebound any time soon. The IRS is agreeing to settle for less because of practical concerns. The deal you may offer could be more than they expect to ever collect from you.
Need To Reconsider Your Partial Payment Installment Agreement?
The Internal Revenue Service today reminded taxpayers that, due to the
current budget situation including the sequester, the agency will be shut down
on Friday, June 14. As was the case on May 24, the first furlough day, all IRS operations will
again be closed on June 14. This means that all IRS offices, including all
toll-free hotlines, the Taxpayer Advocate Service and the agency’s nearly 400
taxpayer assistance centers nationwide, will be closed. IRS employees will be furloughed without pay. No tax returns will be processed and no compliance-related activities will take place. In addition, the online preparer tax identification number PTINsystem for tax professionals will also be shut down.
The IRS noted that taxpayers should continue to file their returns and pay
any taxes due as usual. This includes the June 17 deadline for those making a
second-quarter estimated tax payment. It also includes the June 17 filing
deadline for taxpayers
abroad and the June 30 deadline for filing foreign financial account
Taxpayers needing to contact the IRS about these or other upcoming returns or
payments should be sure to take this Friday’s closure into account. Because none of the furlough days are considered federal holidays, the
shutdown will have no impact
on any tax-filing or tax-payment deadlines. The
IRS will be unable to accept or acknowledge receipt of electronically-filed
returns on any day the agency is shut down. The only tax-payment deadlines coinciding with any of the furlough days
relate to employment and excise tax deposits made by business taxpayers. These
deposits must be made through the Treasury Department’s Electronic Federal Tax
Payment System (EFTPS),
which will operate as usual. On the other hand, the agency will give taxpayers extra time to comply with
a request to provide documents to the IRS. This includes administrative
summonses, requests for records in connection with a return examination, review
or compliance check, or document requests related to a collection matter. No
additional time is given to respond to other agencies or the courts. Where the last day for responding to an IRS request falls on June 14, the
taxpayer will have until Monday, June 17--the next business day. Some web-based online tools and phone-based automated services will continue
to function this Friday, while others will be shut down. Available services
include Withholding Calculator, Order A Transcript, EITC Assistant, Interactive
Tax Assistant, Tele-Tax and the Online Look-up Tool for those needing to repay
the first-time homebuyer credit. Services not available this Friday include
Where’s My Refund? and the Online Payment Agreement. Visit online tools
on IRS.gov to learn more about these tools. The remaining scheduled furlough days are July 5, July 22 and Aug. 30, 2013.
If necessary, the IRS may announce one or two additional furlough days.
The draft, described as a UK version of the US Foreign Account Tax
Compliance Act (FATCA), is said to mandate the automatic reporting of financial
and beneficial ownership information for each account of each offshore
financial institution to the UK's HM Revenue and Customs.
The draft agreement requires the automatic exchange of information for each reportable account of each reporting financial institution. That will include full details of all beneficial owners of the account, including those whose identities might otherwise be hidden by trusts or companies
It will also requires the account number, name and identifying number of the reporting financial institution as provided when registering with the IRS for FATCA purposes, and the account balance or value as of the end of the relevant calendar year or other appropriate reporting period or, if the account was closed during such year, immediately before closure.
Subsequently, the UK Prime Minister David Cameron has written an open letter to leaders of
the Crown Dependencies and British Overseas Territories, urging them to ‘work in
partnership with the UK’ on stringent measures to establish beneficial
ownership of companies.
letter was sent to the heads of government of Jersey, Guernsey, the Isle of
Man, Gibraltar, Bermuda, the British Virgin Islands, the Cayman Islands, the
Turks and Caicos Islands, Anguilla and Montserrat. It asks them to set up
'fully resourced and properly managed' centralized registries that will allow
law enforcement and tax collectors to obtain 'full and accurate details' of
ownership and control of all companies.
letter sets the offshore jurisdictions a nominal deadline of 17 June, the date
of the next G8 leaders' summit to be hosted by the UK. High on the UK’s agenda
will be a drive to 'knock down the walls of company secrecy,' he says.
chief ministers of Jersey, Guernsey, the Isle of Man and Gibraltar have written
to the UK Prime Minister David Cameron offering to join the OECD's Multilateral
Convention on Mutual Assistance in Tax Matters.
also agreed to attend a meeting in London at which the UK will press its
dependencies to agree to full automatic exchange of tax information. The UK
government is currently pressing its dependencies to agree to fully automatic
exchange of tax information. It is hosting a meeting in London on 15 June to
discuss the terms, and the chief ministers of the four jurisdictions have
agreed to attend.
offer to sign the less stringent OECD convention may be intended to show their
commitment to tax transparency, while stopping short of accepting the automatic
reporting of banking transactions to HM Revenue and Customs.
from the jurisdictions' chief ministers to David Cameron stressed the
importance of ‘a global standard of tax transparency to provide a level playing
field for countries across the world’. All are anxious that Britain's Crown
Dependencies and Overseas Territories are not singled out for especially
four ministers also offered to cooperate with proposals for stricter
identification of corporate beneficial ownership, although they say they have
adequate measures in place.
Secret Foreign Accounts Keeping You Awake at Night?