10 Swiss Banks Withdraw From US DOJ's Program

According to Swiss newspaper NZZ am Sonntag, quoting unnamed sources, 10 Swiss Banks that requested the US Department of Justice's non-prosecution program have now withdrawn from it because they have decided they did not systematically break US tax laws (Lets see if DOJ agrees with them?).

The agreement entails paying a large fine and disclosing client information to the US DOJ. On January 28, 2014 we posted "Offshore Swiss Bank Account? This May Be Your Last Chance To File A Voluntary Disclosure!" where we discussed that the United States Justice Department had received 106 Requests from Swiss Entities to participate in a settlement program aimed at ending a long-running probe of tax-dodging by Americans using Swiss bank accounts according to a senior US official. The 106 Swiss banks came forward at the end of last year to work with U.S. authorities in a program brokered by the Swiss government to help the banks make amends for aiding US Tax Evasion.

Liechtenstein-based VP Bank came forward to say it had concluded that it no longer needed to take part in the program.

Barclays Plc’s Swiss unit said it withdrew from the program after an internal review of client accounts.

The Remaining 96 Swiss Banks 

Need To Persuade Their Clients To Come Clean!

As we posted on August 7, 2014, "Swiss banks have sent US client data to the IRS"  where we discussed that June 30 was the deadline for turning over information on Americans considered in breach of U.S. tax rules. August 1, 2014 marks the end of the second wave of deliveries and includes documents that show which American clients were compliant. 

Having met the August 1, 2014 deadline, some smaller banks will take a break from assembling reams of documents. For larger companies such as Cie. Lombard, Odier SCA, Geneva’s oldest bank, and Rothschild Bank AG of Zurich, as well as for some regional lenders including Aargauische Kantonalbank, the work will continue throughout the summer as they try to reduce possible fines by persuading clients to come clean directly to U.S. authorities. 

“There’s a HUGE amount 
of Information Flowing to the US ... from Swiss Banks ...,”

said Jay Rubinstein, a lawyer with Withers LLP in Geneva...  

It all helps the Justice Department and 

the IRS Build Their Cases.”

Client Names 

Swiss law forbids the transfer of client names to foreign governments, unless requests for information conform to criteria set out in tax treaties. But banks can send other information to complement what the U.S. government gleaned from over 43,000 voluntary disclosures by American taxpayers. 

Category 2 banks must disclose:

1.      the total number of U.S. accounts since 2008, 

2.      their highest dollar value and 

3.      the employees who managed them,

in documents verified by an independent examiner, according to a joint Swiss-U.S. government statement announcing the program last August.

Secrecy Waivers

Some banks will try to mitigate penalties by providing documents to the Justice Department by Sept.ember 15, 2014 to support their claims that they encouraged clients to disclose accounts to the IRS through its offshore voluntary disclosure program.  

 

"In some cases they’re providing the 

Names of Account Holders through a

 purported exception to Swiss Banking Secrecy  

or Pursuant to a Valid Request"

and "Banks are breathing down their clients’ necks to encourage them into an accepted IRS voluntary disclosure program,” according to Milan Patel, a U.S. tax lawyer with Anaford AG in Zurich.    

“Some banks are being Very Creative about what constitutes a Waiver of Secrecy Privileges in order to turn over The Account Holder Name to the Justice Department to reduce Their Penalties..."

 Penalty Formula

Fines will based in part on a formula applied to the amount of non-disclosed U.S. assets at the bank. To gain non-prosecution deals, banks must pay:

·         20 percent of the value of accounts not disclosed to the IRS on Aug. 1, 2008,
·         30 percent for such accounts opened between then and February 2009 and
·         50 percent for accounts opened afterward.

Thus US taxpayers who have used a Swiss bank accounts 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.

However, once the Swiss banks disclosed an account holder's name to the IRS, OVDP election is no longer available to that account holder. 

The US Can Use Swiss Data 
for US Enforcement Actions!  

The new agreement makes clear that: “Personal Data provided by the Swiss Banks… Will be Used and Disclosed only for purposes of Law Enforcement (which may include regulatory action) in the United States or as otherwise permitted by US law.”  

Have Un-Reported Income From a Swiss Bank?

Value Your Freedom?


 Contact the Tax Lawyers at 
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:

Reuters

Tax Court - Taxpayer Was Not A Chinese Resident Pursuant to the US/China Tax Treaty

The Tax Court has ruled that a Chinese citizen who had lived in the U.S. and filed a 2005 U.S. return as a resident alien, then filed an amended 2005 return, then, in 2009, received a 2005 refund and interest on that refund, was neither a Chinese resident nor a nonresident alien in 2009 and therefore was subject to tax on the interest income at regular U.S. graduated rates. 
 

Article 10.1 of the tax treaty between the U.S. and China (the treaty) provides that interest arising in a Contracting State (in this case, the U.S.) and paid to a resident of the other Contracting State (China) may be taxed in the other Contracting State (China). Article 10.2 provides that the interest may also be taxed in the Contracting State (U.S.) according to its laws—but if the recipient is the beneficial owner of the interest, the tax may not exceed 10% of the gross amount of the interest.

Article 4 of the treaty provides that the term "resident of a Contracting State" means any person who, under the laws of that Contracting State, is liable for tax therein by reason of his domicile, residence, place of head office, place of incorporation or any other criterion of a similar nature.

An alien individual is deemed a nonresident alien if she or he is neither a citizen of the U.S. nor considered a resident of the U.S.. (Code Sec. 7701(b)(1)(B)) An alien individual is treated as a resident of the U.S. with respect to any calendar year if such individual: (1) is a lawful permanent resident of the U.S. at any time during the calendar year, (2) meets a substantial presence test, or (3) makes a first-year election to be treated as a resident of the U.S. (Code Sec. 7701(b)(1)(A))

Resident aliens file U.S. returns on Form 1040, and nonresident aliens file U.S. returns on Form 1040NR, U.S. Nonresident Alien Income Tax Return.

Mr. Shi was a Chinese citizen.In 2005, he worked as a professor at a New York university and earned wages of $62,000, which he reported as income on Form 1040. From 2008-2012, he worked as a professor at the University of Wisconsin.

In 2008, Shi prepared Form 1040X, Amended U.S. Individual Income Tax Return, for his 2005 tax year. On it, he indicated that he was entitled to exclude all of his wages under a provision of the treaty. He disclosed that he was a resident alien because he met the substantial presence test in 2005; such status was a requirement to qualify for that treaty provision.

In 2009, Shi received a refund of 2005 taxes based on his amended return, plus interest. He filed Form 1040 for 2009 but did not report this interest on that return.

IRS issued a notice of deficiency with respect to this interest in 2011. In the latter part of 2012, Shi lost his job in the U.S. and returned to China. There was no record of Shi's having left the U.S. from his arrival in '99 up to the latter part of 2012.

Taxpayer doesn't qualify for the 10% tax rate in the treaty. 
(No Surprise Here!)

Looking at the above mentioned treaty provisions, the Court concluded that, for Shi to benefit from the treaty, he must be considered a resident of China as defined by the treaty.

Shi argued that Article 4 residency is determined primarily by where an individual has his permanent home. Shi stated that his permanent home in 2009 was in Beijing, China and provided various exhibits substantiating that fact. He also said that he could not have been a resident of the U.S. in 2009 because he never owned a permanent home there. He concluded that he was a resident of China in 2009 under the treaty.

But, the Court ruled against him because Article 4 required that, in order to be considered a Chinese resident, he had to be considered a Chinese resident under Chinese law, and he provided no evidence as to what the relevant Chinese law was.

Taxpayer doesn't qualify to be taxed as a nonresident alien. 

The question of whether Shi was a nonresident alien came down to the second of the three above tests under Code Sec. 7701(b)(1)(A), i.e., the substantial presence test.

The substantial presence test is an objective test: An individual meets the substantial presence test if he was present in the U.S. on at least 31 days during the calendar year, and for at least 183 days during the calendar year and the two preceding calendar years, calculated pursuant to a weighted formula. (Code Sec. 7701(b)(3)(A); Reg. § 301.7701(b)-1(c)(1))

IRS argued that Shi was physically present in the U.S. during all of the 2008-09 and 2009-10 academic years because he was employed as a professor in Wisconsin. Respondent asserted, therefore, that Shi was in the U.S. for more than 183 days in 2009 alone and met the substantial presence test.

Shi then pointed out that professors at the University of Wisconsin frequently take posts in international exchanges. He said that being employed as a professor at the University of Wisconsin is not proof and does not imply that Shi was physically present in the U.S. That is, even if Shi was employed as a professor at the University of Wisconsin during all of the 2008-2009 and 2009-2010 academic years, it does not guarantee that Shi was physically present in the U.S., at all, during all of the 2008-2009 and 2009-2010 academic years. Shi concluded that, without convincing evidence, the supposition that he met the substantial presence test was no more than an arbitrary statement.

The Court said that the preponderance of evidence offered was that Shi was present in the U.S. from '99 to sometime in 2012. Shi's speculations to the contrary were weak and suspect.

The Court said that the significance of his declarations in his 2005 tax return, to the issue at hand, was that once Shi became a resident of the U.S., he remained a resident until he actually departed from the U.S. in 2012. Shi's having filed Form 1040 instead of Form 1040NR for his 2009 tax year showed his understanding that he retained his resident status.

What if Mr. Shi Came To Teach at The
Same Universities Pursuant To a J-1 Visa?

 

 

Now had he come to the US pursuant to a J-1 visa he may not have been a US Resident Alien pursuant to the "Physical Presence Test," since he would be an "Exempt Individual" pursuant to IRC Sec. 7701(b)(5).

Need In-Bound Tax Advise
To Reduce Potential US Taxes?

Contact the Tax Lawyers of 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:

ThompsonReuters

CCH

The Cost To Renounce Your US Citizenship Just Increased By 422%

On Friday, August 8, 2014 we posted, US Expatriation Increase At a Record Pace in 2014! Where we discussed that the number of Americans renouncing U.S. citizenship stayed near an all-time high in the first half of the year before rules that make it harder to hide assets from tax authorities came into force (FATCA - Effective Date July 1, 2014). 

 

The number of Americans renouncing U.S. citizenship stayed near an all-time high in the first half of the year before rules that make it harder to hide assets from tax authorities came into force (FATCA - Effective Date July 1, 2014). 

Now, the State Department interim rule just raised the fee for “Renunciation of U.S. Citizenship” to $2,350 from $450. Critics note that it’s more than twenty times the average level in other high-income countries. The State Department says it’s about demand on their services and all the extra workload they have to process people who are on their way out.

“Renunciation” vs. “Relinquishment”

“Renunciation” Section 349(a)(5) of the Immigration and Nationality Act (INA) (8 U.S.C. 1481(a)(5)) is the section of law governing the right of a United States citizen to renounce his or her U.S. citizenship. That section of law provides for the loss of nationality by voluntarily "(5) making a formal renunciation of nationality before a diplomatic or consular officer of the United States in a foreign state , in such form as may be prescribed by the Secretary of State" (emphasis added).

A person wishing to renounce his or her U.S. citizenship must voluntarily and with intent to relinquish U.S. citizenship:

1.      appear in person before a U.S. consular or diplomatic officer,

2.      in a foreign country (normally at a U.S. Embassy or Consulate); and

3.      sign an oath of renunciation

Renunciations that do not meet the conditions described above have no legal effect. Because of the provisions of Section 349(a)(5), U.S. citizens cannot effectively renounce their citizenship by mail, through an agent, or while in the United States. In fact, U.S. courts have held certain attempts to renounce U.S. citizenship to be ineffective on a variety of grounds, as discussed below.

“Relinquishment” “Relinquishment” of US Nationality is an alternative method to Renunciation for losing one’s US nationality. “Relinquishment” involves a formal confirmation of a prior “expatriating act” and affirmation of the person’s voluntary intent to give up the rights and privileges of US citizenship, by a person who is at least 18 years of age.

The Department of State’s website describes Potentially Expatriating Acts to include certain specified acts voluntarily and with the intention to relinquish U.S. nationality. Briefly stated, these acts include:

1. Obtaining naturalization in a foreign state upon one's own application after the age of 18 (Sec. 349 (a) (1) INA);
2. Taking an oath, affirmation or other formal declaration of allegiance to a foreign state or its political subdivisions after the age of 18 (Sec. 349 (a) (2) INA);
3. Entering or serving in the armed forces of a foreign state engaged in hostilities against the United States or serving as a commissioned or non-commissioned officer in the armed forces of a foreign state (Sec. 349 (a) (3) INA);
4. Accepting employment with a foreign government after the age of 18 if (a) one has the nationality of that foreign state or (b) an oath or declaration of allegiance is required in accepting the position (Sec. 349 (a) (4) INA);
5. Formally renouncing U.S. nationality before a U.S. diplomatic or consular officer outside the United States (sec. 349 (a) (5) INA);
6. Formally renouncing U.S. nationality within the United States (The Department of Homeland Security is responsible for implementing this section of the law) (Sec. 349 (a) (6) INA);
7. Conviction for an act of treason against the Government of the United States or for attempting to force to overthrow the Government of the United States (Sec. 349 (a) (7) INA).

An individual who has performed any of these acts who wishes to lose U.S. nationality may do so by affirming in writing to a U.S. consular officer that the act was performed voluntarily with an intent to relinquish U.S. nationality. A U.S. national also has the option to formally renounce U.S. nationality abroad in accordance with INA Section 349 (a) (5).

Re-Entering the US After Expatriation?

Former U.S. citizens also may face difficulty in even coming back into the United States for visits and it's a choice you can't change. "Renunciation is the most unequivocal way in which a person can manifest an intention to relinquish U.S. citizenship. Please consider the effects of renouncing U.S. citizenship, described above, before taking this serious and irrevocable action."

Under Code Sec. 877A, the current expatriation tax law in effect, there is no limitation on the number of days that an expatriate may return to the U.S. Except, of course, such individuals should take care to avoid spending enough time in the U.S. to exceed the number of days in any given year that would cause them to be considered a U.S. tax resident under the substantial presence test (IRC Section 7701(b)).

For persons who expatriated after June 3, 2004 and before June 17, 2008, there was a maximum limit of 30 days in the calendar year for 10 years after expatriation that one could spend in the U.S. or else they may be taxed as a U.S. citizen and resident, rather than as a nonresident under the expatriation rules. That 30-day limitation is no longer relevant for expatriations occurring after June 17, 2008 when Code Section 877A came into effect.

Senator Jack Reed announced on June 12, 2013 his “Amendment to Prevent Ex-Citizen Tax Dodgers from Reentering the U.S.”  Under that Proposal, a “specified expatriate” will be inadmissible (again, a “specified expatriate” is a “covered expatriate” who cannot establish to the IRS that the “loss of his citizenship” did not result in a “substantial reduction in taxes”).

However, that is just proposed at this stage, and not law. Current US immigration laws provide that former US citizens who are deemed to have renounced their US citizenship for tax avoidance purposes may be banned from entering the US by including them in a class of “inadmissible” aliens. This law is commonly referred to as the “Reed Amendment” and was enacted in 1996. (Public Law 104-208, § 352; INA § 212(a)(10)(E); 8 USC § 1182(a)(10)(E)). The law has never been enforced probably because of doubts as to its constitutionality.

However, there have been reports in the press in the past year that 2 or 3 individuals had been denied entry into the U.S. under the Reed amendment provisions. (See our post Reed Amendment Gernerating Enforcement in 2012?)

If this is true, given that it is only if the expatriation is tax motivated whereby entry into the U.S. might be denied, then one should avoid mentioning taxes as a reason for renunciation when there are likely other valid reasons for expatriation.

Loss of US Nationality and Taxation.

P.L. 104-191 contains changes in the taxation of U.S. nationals who renounce or otherwise lose U.S. nationality. In general, any person who lost U.S. nationality within 10 years immediately preceding the close of the taxable year, whose principle purpose in losing nationality was to avoid taxation, will be subject to continued taxation.

To leave America, you generally must prove 5 years of U.S. tax compliance. If you have a net worth greater than $2 million or average annual net income tax for the 5 previous years of $157,000 or more for 2014 (that’s tax, not income), you pay an exit tax. It is a capital gain tax as if you sold your property when you left. At least there’s an exemption of $680,000 for 2014. Long-term residents giving up a Green Card can be required to pay the tax too.

If you expatriated after June 16, 2008, the new IRC 877A expatriation rules apply to you if any of the following statements apply.

• Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than a specified amount that is adjusted for inflation ($147,000 for 2011, $151,000 for 2012, $155,000 for 2013 and $157,000 for 2014).
• Your net worth is $2 million or more on the date of your expatriation or termination of residency.
• You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.

If any of these rules apply, you are a “Covered Expatriate.”

A Citizen will be treated as relinquishing his or her U.S. citizenship on the earliest of four possible dates:

1. The date the individual Renounces his or her U.S. nationality before a diplomatic or consular officer of the United States, provided the renunciation is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the U.S. Department of State;
2. The date the individual furnishes to the U.S. Department of State a signed statement of Voluntary Relinquishment of U.S. nationality confirming the performance of an act of expatriation specified in paragraph (1), (2), (3), or (4) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(1)-(4)), provided the voluntary relinquishment is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the U.S. Department of State;
3. The date the U.S. Department of State issues to the individual a certificate of loss of nationality; or
4. The date a U.S. court cancels a naturalized citizen’s certificate of naturalization.

A Long-Term Resident, as defined in IRC 7701(b)(6), a long-term resident ceases to be a lawful permanent resident if:

1. The individual’s status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with immigration laws has been revoked or has been administratively or judicially determined to have been abandoned, or if
2. The individual:

(1) Commences to be treated as a resident of a foreign country under the provisions of a tax treaty between the United States and the foreign country,

(2) Does not waive the benefits of the treaty applicable to residents of the foreign country, and

(3) Notifies the IRS of such treatment on Forms 8833 and 8854.

Form 8854, Initial and Annual Expatriation Information Statement, and its Instructions have been revised to permit individuals to meet the new notification and information reporting requirements. The revised Form 8854 and its instructions also address how individuals should certify (in accordance with the new law) that they have met their federal tax obligations for the five preceding taxable years and what constitutes notification to the Department of State or the Department of Homeland Security.

______________________________

Copies of approved Certificates of Loss of Nationality of the United States are provided by the Department of State to the Internal Revenue Service pursuant to P.L. 104-191.

 ______________________________

"Should I Stay or Should I Go"?

Need Advise on Expatriation ... 

Contact the Tax Lawyers of 
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:

US State Department

Forbes

How Fast is Fast Enough When Bank Receives a Levy from IRS

How Fast is Fast Enough When Bank Receives a Levy from IRS? - Procedurally Taxing

A recent case, United States v. JPMorgan Chase Bank, creates a very tight time frame for banks to react to a levy from the IRS and provides some insight on the process of the IRS collection efforts when it determines the collection of tax debt is in jeopardy. 

The court determined that the bank did not move quickly enough to put a hold on the taxpayer’s account and held the bank liable when it allowed the taxpayer to withdraw funds shortly after the IRS served a levy upon the bank. 

While the court may have been influenced by the fact that the levy was served upon a bank, the same speed, or a somewhat similar speed, may be required of any third party receiving a levy and subsequently paying over funds to the person identified in the levy. Read more ...

Need Help With An IRS Levy?

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)