Wednesday, October 31, 2018

IRS Issues Prop Regs Reducing Income for US Corps That Own Stock in Foreign Corps

The Internal Revenue Service today issued proposed regulations reducing the amount determined under Internal Revenue Code section 956 for certain domestic corporations that own (or are treated as owning) stock in controlled foreign corporations (CFCs). 

The Tax Cuts and Jobs Act (TCJA), passed in December 2017, made major changes to the tax law, including enacting a participation exemption system for the taxation of certain foreign income. The new proposed regulations are intended to ensure that the application of section 956 is consistent with the new participation exemption system.

Treasury and IRS welcome public comments on these proposed regulations. For details on submitting comments, see the proposed regulations.

Updates on the implementation of the TCJA can be found on the Tax Reform page of

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Tuesday, October 30, 2018

2017 TCJA Improved US Tax Competitiveness

 The US has moved up the rankings of the Tax Foundation’s 2018 International Tax Competitiveness Index (ITCI), following significant reform implemented by the Tax Cuts and Jobs Act 2017 (TCJA), implemented at the beginning of the year.
Last year’s ITCI saw the US ranked 28th, Whereas this Year’s Report Places it 24th on the List.

The ITCI measures the relative competitiveness and neutrality of each tax regime in the OECD, and concludes that countries with the lowest marginal tax rates and fewest ‘distortionary’ taxes tend to be those with the most competitive tax systems.

The United States adopted a comprehensive tax reform package that included a reduction of the corporate income tax rate from 35 percent to 21 percent, improvements to expensing of capital investments, and rate changes for the personal income tax. As a result, the U.S. improved its ranking from 28th to 24th.
In the individual rankings, the US was placed 26th for individual taxes and 28th for property taxes, while it came 20th in the corporate tax ranking.

The Tax Foundation described the TCJA as “the most significant tax code overhaul in over three decades,” and said on the release of this year’s ITCI: “Due to reforms made by the Tax Cuts and Jobs Act to lower the corporate income tax rate, improve expensing of capital investments, and adjust personal income tax rates, the US improved four spots.”

Nonetheless, the Foundation pointed to areas which would improve the US’ performance in the ITCI, calling both its income tax and property tax burden “weaknesses”, and describing the international tax system as “onerous.”

Estonia has topped the Index for the fifth successive year, while France came at the bottom of the 2018 ranking.

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Marshall Arts Owner Gets Karate Chopped With Tax Fraud Conviction

According to DoJ Arvada, Colorado, woman pleaded guilty on October 29, 2018 to one count of willfully making and subscribing to a fraudulent corporate income tax return.

According to court documents, Marlene Seo owned and operated a corporation called National Martial Arts Academy Inc., a martial arts instruction business. 
From 2011 through 2013, income from Seo’s martial arts school was deposited into bank accounts that she did not disclose to the corporation’s bookkeeper and accountants, which resulted in her underreporting the business’s gross receipts on corporate tax returns for tax years 2011, 2012, and 2013 by approximately $650,000. 
  • Seo plead guilty to signing and filing a false 2012 U.S. Corporation Income Tax Return, Form 1120, filed on behalf of National Martial Arts Academy.
  • Sentencing is scheduled for February 1, 2019. 
  • Seo faces a maximum sentence of 3 years in prison
  • She also faces a term of supervised release, restitution, and monetary penalties.
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Huntington Beach Man Pleads Guilty to Failing to Report Over $2 Million Held in Israeli Bank Account

A Huntington Beach man pleaded guilty on October 29, 2018 to filing a false tax return that failed to report millions of dollars in foreign bank accounts and the resulting income.

According to the DoJ, Elie Waknine, of Huntington Beach, California, held millions of dollars in an offshore account in Israel at Bank Leumi Le-Israel B.M. from approximately 1994 to 2011. 

Despite having this account, Waknine filed a tax return for 2007 that falsely claimed he did not have financial interest in or signature authority over any foreign financial accounts.

In an effort to further hide his money, Waknine instructed Bank Leumi to hold bank mail from delivery to the United States, and obtained access to his offshore funds through the use of “back-to-back” loans, which were designed to enable borrowers to tap their concealed accounts. These lending arrangements permitted Waknine to have funds issued by Leumi’s U.S. branch that were secretly secured by funds in his undeclared accounts in Israel. 

In 2011, Waknine closed his Bank Leumi Israel account, but used the $2.4 million he received from closing the account to open a new undisclosed foreign bank account at another bank in Israel.  Over the period 1994-2015, Waknine held undisclosed foreign bank accounts in four banks in three countries, each with assets of at least $1 million.

In December 2014, Bank Leumi entered into a deferred prosecution agreement, in which the bank admitted to conspiring from at least 2000 until early 2011 to aid and assist U.S. taxpayers to prepare and present false tax returns by hiding income and assets in offshore bank accounts in Israel and other foreign locations.  

Under The Terms Of The Deferred Prosecution Agreement, Bank Leumi Paid the US a Total of $270 Million and "CONTINUES TO COOPERATE"
With Respect To Civil And Criminal Tax Investigations.  

U.S. citizens, resident aliens, and permanent legal residents with a foreign financial interest in or signatory authority over a foreign financial account worth more than $10,000 are required to file an FBAR each year disclosing the account, and are required to report the account and any resulting income on their annual tax returns.

Waknine faces a maximum sentence of 3 years in prison, as well as a period of supervised release, restitution and monetary penalties.

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Is Your Name Being Handed Over to the IRS?
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Right for You? 
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Monday, October 29, 2018

Former Swiss Banker Sentenced to Prison For 10 Years

On September 18, 2018 we posted, Former Swiss Banker Charged in $1.2 Billion Venezuelan International Money Laundering Operation where we discussed the former managing director and vice chairman of Julius Baer pleaded guilty on August 22, 2018, for his role in a $1.2 Billion international scheme to launder funds embezzled from Venezuelan state-owned oil company Petr√≥leos de Venezuela, S.A. (PDVSA).

Matthias Krull, 44, a German national and Panamanian resident, pleaded guilty to one count of conspiracy to commit money laundering, on Aug. 22.  U.S. District Judge Cecilia M. Altonaga of the Southern District of Florida sentenced Krull to: 
  • Serve 120 months in prison,
  • to be followed by 3years of supervised release
  • to pay a fine in the amount of $50,000 and
  • a forfeiture money judgment of $600,000.

As part of his plea, Krull admitted that in his position with the Swiss bank, he attracted private clients, particularly clients from Venezuela, to the bank.  In this role, Krull’s clients included Francisco Convit Guruceaga, who was indicted on money laundering charges on Aug. 16.  Krull’s clients also included three unnamed conspirators described in the Aug. 16 indictment.

Krull admitted that the conspiracy began in December 2014 with a currency exchange scheme that was designed to embezzle around $600 million from PDVSA, obtained through bribery and fraud and the conspirators’ efforts to launder a portion of the proceeds of that scheme.  By May 2015, the conspiracy had doubled in amount to $1.2 billion embezzled from PDVSA.  PDVSA is Venezuela’s primary source of income and foreign currency (namely, U.S. Dollars and Euros).  Krull joined the conspiracy in or around 2016, he admitted, when a co-conspirator contacted him to launder the proceeds of a PDVSA foreign-exchange embezzlement scheme.

Ultimately, Krull joined the conspiracy to launder $1.2 billion worth of funds that were embezzled from PDVSA, he admitted.  Krull and members of the money laundering conspiracy used Miami, Florida real estate and sophisticated false-investment schemes to conceal that the $1.2 billion was in fact embezzled from PDVSA.  Krull also admitted that surrounding and supporting these false-investment laundering schemes are complicit money managers, brokerage firms, banks and real estate investment firms in the United States and elsewhere, operating as a network of professional money launderers.

Krull’s co-conspirators indicted on Aug. 16 include former PDVSA officials, professional third-party money launderers and members of the Venezuelan elite, sometimes known as “boliburgu√©s.”
An indictment is merely an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

This case is the result of ongoing efforts by the Organized Crime Drug Enforcement Task Force’s (OCDETF) “Operation Money Flight,” a partnership among federal, state and local law enforcement agencies.  The OCDETF mission is to identify, investigate and prosecute high-level members of drug trafficking enterprises, bringing together the combined expertise and unique abilities of federal, state and local law enforcement.

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Wednesday, October 24, 2018

Switzerland Disclosed 2,000,000 Financial Accounts to Foreign Governments

The Swiss Federal Tax Administration has disclosed details of 2,000,000 financial accounts to partner jurisdictions under the global rules for automatic exchange of information.  

The Federal Tax Administration (FTA) has for the first time exchanged financial account information. The exchange took place within the framework of the global standard on the automatic exchange of information (AEOI).  

It is the first time the country has ever revealed bank account information in such quantities, though Switzerland is still refusing to share data with some jurisdictions it regards as not sufficiently secure. 

This first exchange within the framework of AEOI provides that Switzerland exchanges in 2018 with EU states as well as with a further nine states and territories (Australia, Canada, Guernsey, Iceland, Isle of Man, Japan, Jersey, Norway, South Korea).
Transmission of Data by Switzerland Took Place at the
End of September 2018.

Cyprus and Romania are currently excluded as they do not yet meet the international requirements on confidentiality and data security. Transmission of data to Australia and France is delayed, as these states could not yet deliver data to the FTA due to technical reasons. Similarly, the FTA has not yet received data from Croatia, Estonia and Poland. The other partner states have transmitted data to the FTA.
Currently, around 7,000 Reporting Financial Institutions (banks, trusts, insurers, etc.) are registered with the FTA. These institutions collected the data and transferred it to the FTA.
The FTA Sent Information On Around 2 Million Financial Accounts To The Partner States And
Received Information In The Millions From Them.

Definitive numbers on information received are not yet available. The FTA cannot provide any information on the amount of financial assets.

Identification, Account And Financial Information Is Exchanged, Including Name, Address, State Of Residence And Tax Identification Number, As Well As Information Concerning The Reporting Financial Institution, Account Balance And Capital Income. 
The exchanged information allows the cantonal tax authorities to verify whether taxpayers have correctly declared their financial accounts abroad in their tax returns.

The AEOI Will Now Take Place On A Yearly Basis.

In 2019, data from 2018 will be exchanged with around 80 partner states, provided these meet the requirements on confidentiality and data security. The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) reviews the participating states' implementation of the AEOI.
Have Unreported Swiss Income?

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Tuesday, October 23, 2018

Former Texas Company CFO Pleads Guilty to Employment Tax Fraud

According to DoJ, the former Chief Financial Officer of an Austin, Texas based company pleaded guilty today to willfully failing to pay over employment taxes to the Internal Revenue Service (IRS).

According to court documents, from 2010 to 2016, John Herzer was the CFO of AXO Staff Leasing (AXO), a professional employer organization.

Herzer handled all of the company’s finances and had final authority over which creditors to pay and when to pay them. Herzer was also responsible for collecting and paying to the IRS taxes withheld from AXO’s employees’ wages.

Despite this obligation, Herzer did not pay to the IRS AXO’s employment tax withholdings and instead used more than $4.9 million of those funds for his own benefit including paying personal expenses and transferring millions of dollars to his own bank accounts. 

In Total, Herzer’s Fraudulent Conduct Caused A Tax Loss To The IRS Of More Than $13 Million. 

A sentencing date has not yet been scheduled. Herzer faces a statutory maximum sentence of 5 years imprisonment, as well as a term of supervised release, restitution.

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Former IRS-CI Special Agent Sentenced to Prison for Filing False Tax Returns - REALLY?

According to the DoJ, a former special agent for the Internal Revenue Service-Criminal Investigation was sentenced to serve 51 months in prison for filing false tax returns, obstruction of justice, and stealing government money.
According to the evidence introduced at trial, Alena Aleykina, 45, who is also a Certified Public Accountant and holds a master’s degree in business administration, filed six false tax returns – three personal tax returns for years 2009, 2010, and 2011, and three in the names of trusts she created for years 2010 and 2011.  
  • On her personal tax returns, Aleykina fraudulently claimed the head of household filing status, listed false dependents, and claimed deductions for education expenses to which she was not entitled.
  • Aleykina also obtained a fraudulent legal separation decree from the California Superior Court for Yolo County so that she and her husband could claim rental real estate loss deductions to which they were not entitled. 
  • Further, on a trust tax return, she falsely claimed to be paying wages to her mother and her sister to care for her son and father. 
  • Additionally, Aleykina stole government funds and obstructed justice during the investigation. 
  • She stole from the IRS’s Tuition Assistance Program, a program created to allow IRS employees to take job-related classes from local colleges and educational institutions.
  • Aleykina falsely claimed to be taking English classes from a trust registered to her sister.
  • As a result of these fake classes, Aleykina recieved $4,000 in tuition reimbursement from the Tuition Assistance Program.  
When criminal investigators approached Aleykina to retrieve her government laptop, Aleykina lied to the agents about the location of the laptop and deleted dozens of files from the computer after the agents left. 

The total loss to the government from Aleykina’s conduct is more than $50,000.

Aleykina was previously convicted in June after a two-week federal jury trial in the Eastern District of California of filing false tax returns, destroying records in a federal investigation, and theft of government money.

In addition to the term of prison imposed, Aleykina was also ordered to serve one year of supervised release and to pay $4,000 in restitution to the Internal Revenue Service (IRS). 

 Have a Tax Problem?

Contact the Tax Lawyers at 
Marini & Associates, P.A.
for a FREE Tax Consultation contact us at
or Toll Free at 888-8TaxAid (888 882-9243)