Zwerner' FBAR Case Goes To Trial 5/20/14 and Will Test The IRS' Ability to Assert The Willfulness Penalty For Multiple Years.

We previously posted on Wednesday, June 19, 2013, ""Quite Disclosure" Caught - DOJ Files To Collect 50% FBAR Penalty!" dealing with the U.S. government's 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).

As this case goes to trial on May 20, 2014 it may help to set the standard for whether the IRS can assert willfulness and multiple year penalties in a taxpayer's failure to timely file the Report of Foreign Bank and Financial Accounts (FBAR).

The IRS has 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 9.5.11.9, 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.

Did You Make a "Quite Disclosure"?

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Swisspartners Turns Over 110 American Clients to US Authorities!

     

Swisspartners Investment Network AG, a Swiss-based asset management firm, and three of its wholly-owned subsidiaries (collectively, the Swisspartners Group), entered into a non-prosecution agreement (NPA) with the U.S. Attorney’s Office for the Southern District of New York and agreed to pay $4.4 million to the United States.   

The NPA was entered into based on, among other things, the Swisspartners Group’s remedial measures, voluntary self-reporting and extraordinary cooperation, including: 

Its Voluntary Production of approximately 110 Client Files 

for non-compliant U.S.-Taxpayer Clients 

In return Swisspartners Group will not be criminally prosecuted for assisting U.S. taxpayer-clients in opening and maintaining undeclared foreign bank accounts from in or about 2001 through in or about 2011.   


The NPA applies only to the four specific entities that are party to it and does not apply to any other subsidiaries of swisspartners Investment Network AG or any individuals.

 

 
"The extraordinary cooperation of Swisspartners has enabled us to identify U.S. tax cheats who have hidden behind phony offshore trusts and foundations,” said Deputy Attorney General Cole .   “In this and other cases around the world, we will continue to provide substantial credit for prompt and full cooperation.”

“This office will continue to work aggressively to hold accountable not only those U.S. taxpayers who evade their tax obligations by hiding money overseas, but also those abroad who make such tax evasion possible,” said U.S. Attorney Bharara.    

The NPA was entered into between the U.S. Attorney’s Office, on the one hand, and swisspartners Investment Network AG and the following three wholly-owned subsidiaries on the other: 

• Swisspartners Wealth Management AG, a   Zurich-based company that establishes and manages entities such as foundations and trusts; 
• Swisspartners Insurance Company SPC Ltd., a Cayman Islands-based life insurance carrier that offers life insurance and annuity products; and 
• Swisspartners Versicherung AG, a Liechtenstein-based insurance carrier that offers a variety of insurance and annuity products.

The NPA recognizes the extraordinary cooperation of the Swisspartners Group, including its voluntary production of client files for 110 non-compliant U.S. taxpayers that included the identities of those U.S. taxpayers.As part of the NPA, the Swisspartners Group admitted various facts concerning its wrongful conduct and the remedial measures that it took to cease that conduct.   Specifically, the Swisspartners Group admitted:

• That it knew certain U.S. taxpayers were maintaining undeclared foreign bank accounts with the assistance of the Swisspartners Group in order to evade their U.S. tax obligations, in violation of U.S. law.    
• The Swisspartners Group acknowledged that it helped certain U.S. taxpayer-clients conceal from the IRS their beneficial ownership of undeclared assets maintained in foreign bank accounts by, among other things, creating sham foundations and other sham entities that served as the nominal account holders; placing accounts or insurance policies in the names of non-U.S. nationals; facilitating the transportation of large amounts of cash into the United States on behalf of U.S. taxpayer-clients; and 
• Arranging for the bulk deposit of cash at Swiss depository financial institutions on behalf of U.S. taxpayer-clients.

That action was filed on May 9, 2014, in the U.S. District Court for the Southern District of New York and assigned to U.S. District Judge Gregory H. Woods.

The department entered into the NPA based on factors including:

• the Swisspartners Group’s voluntary implementation of various remedial measures beginning in or about May 2008;
• the Swisspartners Group’s voluntary self-reporting of its criminal conduct at a time when it was neither a subject nor target of any investigation by the U.S. Department of Justice;·          the Swisspartners Group’s voluntary and extraordinary cooperation, including its voluntary production of account files that include the identities of U.S. taxpayer-clients;
• the Swisspartners Group’s willingness to continue to cooperate to the extent permitted by applicable law; and
• the Swisspartners Group’s representation, based on an investigation by outside counsel, the results of which have been shared with the U.S. Attorney’s Office and the Tax Division, that the misconduct under investigation did not, and does not, extend beyond that described in the Statement of Facts.

The NPA requires the Swisspartners Group to continue to cooperate with the United States for at least three years from the date of the agreement.   In the event that the Swisspartners Group violates the NPA, the U.S. Attorney’s Office may prosecute the Swisspartners Group.

US taxpayers who have undeclared accounts with Swisspartners Group or other Swiss Banks, may now want to consider applying for the US Offshore Voluntary Disclosure Program (OVDP), which sets a limit to the penalties imposed on them by the Internal Revenue Service (IRS) for failing to declare foreign assets and earnings.

 

Once the Swiss Banks disclose an account holder's name to the IRS under the non prosecution agreement,  

the OVDP election is no longer available!!!

 

Have Un-Reported Income From a Swiss Bank?

 

 

Value Your Freedom?

 

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Marini & Associates, P.A.

  

for a FREE Tax Consultation Contact US at 

www.TaxAid.us or www.TaxLaw.ms

or Toll Free at 888-8TaxAid (888 882-9243).

  Source:

    DoJ

Tax Court Upholds Negligence Penalty But Not Fraud Penalty

The Tax Court has upheld IRS's determinations with respect to the car and truck expenses that a married couple was entitled to deduct, finding that their records were inconsistent and didn't support the higher amounts claimed. 

However, the Court declined to impose a fraud penalty against the couple, concluding that the errors on their returns were instead attributable to negligence, and imposed accuracy-related penalties accordingly. Flake, TC Memo 2014-76.

 Tax Problem?

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Marini & Associates, P.A.  

 

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at: www.TaxAid.us or www.TaxLaw.ms or

Toll Free at 888-8TaxAid ((888) 882-9243)

Source:

Thomson Reurters 

IRS Released Forms 8966 & 1042 Updated For FATCA Reporting Requirements

On March 5, 2014 the Internal Revenue Service released new versions of three critical forms to help financial institutions and withholding agents meet the requirements of the Foreign Account Tax Compliance Act, including draft versions of Form 8966 and Form 1042-S, and a final version of Form 1042.
        

Form 8966, FATCA Report, is a new form that foreign financial institutions (FFIs) would use to report information on their U.S. account holders under the 2010 law. The statute requires FFIs to report accounts held by U.S. taxpayers to the IRS or face, in some cases, a 30% withholding tax on certain U.S. source payments that are made to them.
        

Form 1042-S now incorporates FATCA and includes ways to account for withholding under Chapter 4 of the tax code. In one specific update to the new draft, the IRS added a space for a payer's Global Intermediary Identification Number in situations where the payer and the withholding agent aren't the same.

Do You Have Unreported Foreign Income?

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Fast Track Settlement Program - When & How To Use It During an Audit

FTS is an optional strategy to reach resolution when the SB/SE examiner and manager and the taxpayer have exhausted established issue resolution strategies.

For eligible cases, FTS allows taxpayers that have unagreed issues to work with SB/SE Examination and the Office of Appeals (Appeals) to resolve the issues while the case remains in SB/SE's jurisdiction.

FTS may be initiated any time after an issue has been fully developed.

The SBSE-04-0414-0010 memo provides guidance and procedures for actions an examiner and group manager (GM) must take related to FTS. The procedures will be incorporated into the Internal Revenue Manual (IRM) by April 4 of next year. 


This memorandum provides interim guidance regarding the Small Business/Self-Employed (SB/SE) Fast Track Settlement (FTS) program. Please ensure this information is distributed to all affected employees within your organization. It is effective immediately.

Both SB/SE and Appeals are committed to reducing the time it takes taxpayers to complete the examination and resolution process. FTS is an optional strategy to reach resolution when the SB/SE examiner and manager, and the taxpayer have exhausted established issue resolution strategies. The FTS process is estimated to be completed within 60 calendar days of Appeals’ acceptance of the FTS application.

For eligible cases, FTS allows taxpayers that have unagreed issues to work with SB/SE Examination and the Office of Appeals (Appeals) to resolve the issues while the case remains in SB/SE’s jurisdiction. FTS may be initiated any time after an issue has been fully developed.

Managerial involvement is required in all unagreed cases. The group manager should review the case file to ensure the taxpayer has submitted requested information and all issues are fully developed and documented. In addition, Field Examination group managers are required to make contact in person or by telephone with taxpayers and/or representatives on all unagreed cases. Office Examination group managers are required to make contact in person or by telephone with taxpayers and/or representatives to offer a group manager’s conference on cases where the taxpayer has requested their case be sent to Appeals. During conferences the group manager should discuss disputed issues with the taxpayer in an attempt to resolve the issues, obtain agreement, and limit taxpayer burden. If the issues cannot be resolved with the involvement of the group manager, the taxpayer should be informed of the following resolution options:

1. FTS for eligible cases (note: Fast Track Mediation should no longer be offered) 
2. Formal appeal with the Office of Appeals 
3. Pay the deficiency and file a claim for refund 
4. Receive a notice of deficiency and file a petition in U.S. Tax Court

There are many benefits of the SB/SE FTS program, including:

• Resolving issues at the lowest level possible by using the mediation skills and settlement authority of Appeals 
• Reducing taxpayer burden 
• Reducing overall case cycle time 
• Reducing examiner burden in successful cases by eliminating the need for extensive write up, rebuttal memorandum, etc. 
• Reducing resource needs for the Service

Attachment 1, SB/SE Fast Track Settlement, provides guidance and procedures for FTS. This guidance will be incorporated into IRM 4.10.7, Issue Resolution, by April 4, 2015.

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US Boycott Leaves Russia No Time to Comply With FATCA

The US government has broken off FATCA treaty negotiations with Russia because of the Ukraine crisis. As the United States attempts to punish Russia for its actions in Ukraine, the Treasury Department is deploying an economic weapon that could prove more costly than sanctions: the Internal Revenue Service. Beginning in July, U.S. banks will be required to start withholding a 30 percent tax on certain payments to financial institutions in other countries, unless those foreign banks have agreements in place to share information about U.S. account holders with the IRS. The withholding applies mainly to investment income. Russia and dozens of other countries have been negotiating information-sharing agreements with the U.S. in an effort to spare their banks from such harsh penalties. But after Russia annexed Crimea and was seen as stoking separatist movements in eastern Ukraine, the Treasury Department quietly suspended negotiations in March. With the July 1 deadline approaching, Russian banks are now concerned that the price of investing in the United States is about to go up. The new law means that Russian banks that buy U.S. securities after July 1 will forfeit 30 percent of the interest and dividend payments. The withholding applies to stocks and bonds, including U.S. Treasuries. Some previously owned securities would be exempt from the withholding, but in general, previously owned stocks would not. Private investors who use Russian financial institutions to facilitate trades also face the withholding penalty. Those private investors could later apply to the IRS for refunds, but the inconvenience would be enormous. The withholding would expand in 2017, if there was still no information-sharing agreement. At that point, if investors sold stocks or bonds, U.S. banks would be required to withhold a 30 percent tax on the gross proceeds from those sales. The law would also snag big global banks with subsidiaries that don’t have agreements with the IRS to share information. At first the withholding could be limited to the subsidiaries. But eventually, if any part of a large global bank refused to comply with the information-sharing requirements, the entire bank would be penalized. For Russia, the penalties could be more damaging to its economy than U.S. sanctions, said Brian L. Zimbler, managing partner of the Moscow office of Morgan Lewis, an international law firm. The Treasury Department said Russian banks can still apply on their own to share information about U.S. account holders directly with the IRS. But those banks may risk violating local privacy laws by sharing such information with a foreign government. “They can’t do it,” Zimbler said. “Russia does have bank secrecy laws.” It is a problem that banks around the world are facing. To get around the hurdle, the Treasury Department has been negotiating agreements in which foreign governments will collect the information from their banks and then share it with U.S. authorities. Russia was negotiating one of these agreements when the U.S. broke off talks. Russian banks face another hurdle: time. In June, the Treasury Department is scheduled to release a list of foreign banks that are exempt from withholding. If your bank isn’t on the list, U.S. banks are required to start withholding 30 percent of your payments in July. The deadline for getting on the list was Monday, just a few weeks after the U.S. and Russia suspended negotiations. The Russian government is now trying to amend its banking laws in time to avoid at least some of the penalties imposed by the US Foreign Account Tax Compliance Act when its reporting requirements come into force in July.  Russia is in a race against time to adapt its laws to the U.S. Foreign Account Tax Compliance Act, or FATCA, and save its banks from financial sanctions.  Legislation allowing Russian financial institutions to share information about their U.S. clients with the U.S. tax service, the IRS, was submitted to the State Duma on Wednesday April 23, 2014, but has no hope of being passed before FATCA comes into force on July 1, 2014. Realizing this, legislators have resorted to creative law-making, pinning a package of stopgap measures to unrelated legislation due to be passed by the parliament on Friday April 25, 2014. But this has not been enough to soothe bankers' nerves, and they have appealed to the Central Bank for clarity. Banks must register with the IRS by May 5, and the law comes into force on July 1. After that date, Washington will block 30 percent of payments made to non compliant financial institutions by U.S. entities.  Do You Have Unreported Foreign Income? Contact the Tax Lawyers at Marini & Associates, P.A.     for a FREE Tax Consultation at: www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid ((888) 882-9243) Sources: Moscow Times Business Insider