Tax Treaties Face Additional Obstacles After 10 Years of Delay

On July 31, 2019 we posted Senate OKs Tax Treaties With Spain, Japan, Switzerland & Luxembourg, where we discussed that Senate approved on July 17, 2019 three bilateral tax treaties with Switzerland, Luxembourg and Japan, one day after approving a treaty with Spain.The treaties were approved after years of inaction on the agreements, a development welcomed by a trade group that represents multinational corporations.

This first round of approved treaties were protocols, which update existing treaties that are, in part, designed to help prevent companies from being subject to double taxation.

Pending new tax treaties that weren’t among those voted on when the U.S. Senate recently ended a years-long impasse could face additional delays, in part because the U.S. Treasury Department wants to add a caveat that may complicate the approval process.

But three treaties that remain pending are unlikely to move through the Senate with the same relative ease of the first four, in part because these new agreements could override a provision in the Tax Cuts and Jobs Act unless Treasury intervenes. Specifically, Treasury has requested reservations concerning the TCJA’s base erosion and anti-abuse tax provision that could require the U.S. to renegotiate the treaties. The Hungary and Poland treaties would replace ones from the 1970s and the Chile treaty would be that nation’s first with the U.S.

Because These Are New Treaties Rather Than Protocols,

They Could Override The TCJA.

 

These new treaties would trump the statute due to the “later in time” principle, which refers to the 1888 U.S. Supreme Court case Whitney v. Robertson .
The ruling states that if treaties and legal provisions are inconsistent, “the one last in date will control the other." If the new treaties override the U.S. tax overhaul, it would mean the TCJA’s base erosion and anti-abuse provision wouldn’t apply.

Have an International Tax Problem?

 

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Source


Law360

LLB Verwaltung (FKA Liechtensteinische Landesbank) Agrees With IRS & Is Turning Over Names of US Customers

On September 3, 2018 we posted 150 Offshore Banks & Now Financial Advisors Are Turning Over Your Names To The IRS - What Are Your Waiting For?, we discussed that the IRS keeps updating its list of foreign banks which are turning over the names of their US Account Holders, who where then subject to a 50% (rather than 27.5%) penalty in the IRS’s Offshore Voluntary Disclosure Program (OVDP) and that Liechtensteinische Landesbank was on this list.

Now according to DoJ, the Justice Department Announced that the resolution with LLB Verwaltung (Switzerland) AG Assistance to U.S. Taxpayers to Commit Tax Evasion has resulted in $10.6 Million Penalty LLB Verwaltung (Switzerland) AG, formerly known as “Liechtensteinische Landesbank (Schweiz)

AG” (LLBSwitzerland), a Swiss-based private bank, reached a resolution with the United States Department of Justice, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division on August 5, 2019.

As part of the agreement, LLB-Switzerland will pay a penalty of $10,680,554.64 to the United States.

"This Resolution Is Another Step Forward In The Department Of Justice’s Pursuit Of Tax Evaders, Who Use Foreign Bank Accounts To Commit Criminal Activity, and Those Institutions, Who Enable Such Criminal Tax Activity,"

 

 Said Principal Deputy Assistant Attorney General Zuckerman.

"The Department Is Dedicated To Holding Both Financial Institutions And Individual Offenders

Accountable For Tax Evasion."

 

According to the terms of the non-prosecution agreement, in addition to paying a penalty, LLB-Switzerland has agreed to cooperate in any related criminal or civil proceedings in return for the Department’s agreement not to prosecute the company for tax-related criminal offenses committed by LLB-Switzerland.

According to the statement of facts agreed to by the parties, LLB-Switzerland and some of its employees, including members of the bank’s management, conspired with a Swiss asset manager and U.S. clients to conceal those U.S. clients’ assets and income from the Internal Revenue Service (IRS) through various means, including using Swiss bank secrecy protections and nominee companies set up in tax haven jurisdictions. The majority of those accounts were in the names of nominee entities.

In 1997, Liechtensteinische Landesbank AG (LLB-Vaduz), a bank headquartered in Liechtenstein, acquired LLBSwitzerland (LLB-Vaduz reached a separate agreement with the Justice Department in 2013 that excluded LLBSwitzerland from the resolution).

At that time, LLB-Switzerland provided banking and asset management services to individuals and entities, including citizens and residents of the United States, principally through private bankers based in Zurich, Geneva and Lugano, Switzerland. LLB-Switzerland also acted as a custodian of assets managed by thirdparty external investment advisers.

In 2003, LLB-Switzerland began a relationship with a Swiss asset manager. The asset manager offered to create nominee structures, including corporations, foundations, and trusts, to conceal accounts owned by his U.S. clients at Swiss financial institutions. LLB-Switzerland delegated to the Swiss asset manager the authority to prepare account opening and “know your customer” (KYC) documents.

The Swiss asset manager provided prospective customers with a sales letter, pitching his ability to conceal a client’s assets and income from taxing authorities through the use of multiple layers of sham offshore entities and nominee directors in countries or regions that the Swiss asset manager thought would resist requests for information and assistance from foreign law enforcement, including law enforcement in the United States. LLB-Switzerland and its management knew that the Swiss asset manager was marketing structures to clients as a means of tax evasion as the bank kept a copy of the manager’s sales letter in the bank’s files.

In 2008, after it became publicly known that UBS AG, Switzerland’s largest bank, was the target of a U.S. criminal investigation focusing on tax and other violations, the amounts that LLB-Switzerland held for U.S. clients swelled.

At the end of 2007, the Bank had 72 U.S. clients with almost $80 million in assets. By the end of the next year, the number of U.S. clients increased to 107, but the assets more than doubled to over $176 million. LLB-Switzerland’s management knew that many of the U.S. clients coming to LLB‑Switzerland were bringing undeclared funds with them.

Although LLB-Switzerland’s management monitored the United States’ investigation of UBS, LLB-Switzerland failed to take actions to cease assisting U.S. taxpayers to evade their taxes. While in August 2008, LLB-Vaduz prohibited U.S. persons from becoming clients of the Liechtenstein bank, LLB-Switzerland did not implement a similar policy.

Despite press reports, indicating the Swiss asset manager was under investigation for helping clients evade U.S. taxes, LLBSwitzerland waited two years, until a grand jury had indicted the Swiss asset manager, to close the accounts he managed.

LLB-Switzerland’s remediation efforts since 2012 have been comprehensive.

• It halted and terminated all U.S. crossborder business with U.S. clients.
• All of LLB-Switzerland’s U.S. clients and its relationship with the Swiss asset manager ended.
• It also dismissed its managers and employees implicated in the Department’s investigation of the bank’s U.S. cross-border business, and
• LLB-Vaduz has shut down the operations of LLB-Switzerland.

In 2013, LLBVaduz closed LLB-Switzerland and returned LLB-Switzerland’s banking license to the Swiss Financial Market Supervisory Authority.

Under this agreement Liechtensteinische Landesbank is required to:

• Make a complete disclosure of their cross-border activities;
• Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
• Cooperate in treaty requests for account information;
• Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
• Agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and
• Pay appropriate penalties.

Liechtensteinische Landesbank has made substantial efforts to cooperate with the IRS investigation, including by:

1. facilitating interviews that their Office with employees, including top level executives;
2. voluntarily producing documents in response to the Office’s requests;
3. providing, in response to a treaty request, unredacted client files for the U.S. taxpayer-clients who maintained accounts at their Banks or Financial Instruction; and
4. committing to assist in responding to a treaty request that is expected to result in the production of un-redacted client files for U.S. taxpayer-clients who maintained accounts at these Banks and Financial Instructions and with these Foreign Financial Advisors. 

Since the OVDP program ended on September 28, 2018, US taxpayers are now subject to  a 50% penalty per year. This penalty now applies to all taxpayers with accounts at financial institutions or with facilitators which are named, are cooperating or are identified in a court filing such as a John Doe summons. 

 

Although the 50% penalty is high, willful civil violations can result in tax, penalties and interest totaling 325% of the highest balance in the account for the  most recent six years period. Recent guidance suggests that the IRS could be more lenient in the future, but the IRS’s definition of leniency can still make the OVDP a very good deal that provides certainty.   

 

Do You Have Undeclared Income from one of 

these Offshore Banks or 

Financial Advisors?

 

 

Is Your Name Being Handed Over to the IRS?

  

Want to Know Which OVDP Program is Right for You? 

 

Contact the Tax Lawyers at 

Marini & Associates, P.A.   

 

 

for a FREE Tax Consultation contact us at:

www.TaxAid.com or www.OVDPLaw.com or

 

IRS Letters to Virtual Currency Owners Regarding Back Taxes

The Internal Revenue Service has begun sending letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly.

"Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties," said IRS Commissioner Chuck Rettig.

"The IRS is expanding our efforts involving Virtual Currency, including increased use of Data Analytics.

We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations."

The IRS started sending the educational letters to taxpayers in mid July. By the end of August,
more than 10,000 taxpayers will receive these letters.

The names of these taxpayers were obtained through

various ongoing IRS compliance efforts.

For taxpayers receiving an educational letter, there are three variations: Letter 6173, Letter 6174 or Letter 6174-A, all three versions strive to help taxpayers understand their tax and filing obligations and how to correct past errors.

Taxpayers are pointed to appropriate information on IRS.gov, including which forms and schedules to use and where to send them.

Last year the IRS announced a Virtual Currency Compliance campaign to address tax noncompliance related to the use of virtual currency through outreach and examinations of taxpayers. The IRS will remain actively engaged in addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits to criminal investigations.

Virtual currency is an ongoing focus area for

IRS Criminal Investigation.

IRS Notice 2014-21 states that virtual currency is property for federal tax purposes and provides guidance on how general federal tax principles apply to virtual currency transactions. Compliance efforts follow these general tax principles. The IRS will continue to consider and solicit taxpayer and practitioner feedback in education efforts and future guidance.

The IRS anticipates issuing additional legal guidance in this area in the near future.

Taxpayers who do not properly report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.

Have a Virtual Currency Tax Problem?

Value Your Freedom?

Contact the Tax Lawyers at

Marini & Associates, P.A. 

 

 for a FREE Tax Consultation Contact US at

www.TaxAid.com or www.OVDPLaw.com

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

French Taxes - IRS Clarifies How to Claim Refund for Previously Non-Creditable (CSG) & (CRDS) taxes

The IRS website; Foreign Tax Credit states that US employers may not file for refunds claiming the foreign tax credit (FTC) for the previously non-creditable French Contribution Sociale Generalisee (CSG) and Contribution au Remboursement de la Dette Sociate (CRDS) taxes withheld or otherwise paid on behalf of their employees. IRS has also clarified how individuals can claim FTCs in prior years related to the CSG and CRDS taxes. 

IRC Sec. 901 generally permits taxpayers to claim an FTC for income, war profits, and excess profits taxes paid or accrued during the tax year to any foreign country or to any U.S. possession.

Taxes paid to a foreign country in accordance with a social security totalization agreement aren't eligible for the FTC.

FTC applies to CSG and CRDS. The IRS has stated that the US and France memorialized through diplomatic communications an understanding that the CSG and CRDS taxes are not social security taxes covered by the Totalization Agreement. Accordingly, the IRS will not challenge FTCs for CSG and CRDS payments on the basis that the Totalization Agreement applies to those taxes.

IRS reminded taxpayers of the 10-year period to file a claim for a refund with respect to a FTC.

IRS has clarified that US employers may not file for refunds claiming a foreign tax credit for CSG/CRDS taxes withheld or otherwise paid on behalf of their employees.

It has also noted that individuals may file amended returns, using Form 1040X to include accompanying Form 1116, Foreign Tax Credit, going back to tax year 2009.

The individuals should write “French CSG/CRDS Taxes” in red at the top of Forms 1040-X, and file them with accompanying Forms 1116.

Have an International Tax Problem?

 

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

 

 for a FREE Tax Consultation Contact US at

www.TaxAid.com or www.OVDPLaw.com

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

 

 

 

 

IRS To Focus on US Individuals' Foreign Income With New Campaigns

According to Law360, The IRS has announced six new compliance campaigns focused on issues affecting U.S. nationals' overseas income, capital gains taxes for some pass-through businesses and certain forms of deferred compensation for services.

A statement from the Internal Revenue Service's Large Business and International division didn't include a launch date for the campaigns, but their adoption brings the total number of LB&I compliance initiatives to 59.

The latest campaigns were decided through data analysis by the division, which oversees corporations, subchapter S corporations under the U.S. tax code and partnerships with assets of over $10 million, as well as suggestions from IRS employees, according to the statement.

LB&I said the campaigns would further its goals of improving decisions on which corporate tax returns require scrutiny, identifying potential sources of noncompliance and making efficient use of resources.

Four of the campaigns involve LB&I's regulatory role in the international operations of corporate and individual U.S. taxpayers, namely, transfer pricing and compliance with foreign tax authorities. These campaigns are:

1. Post-OVDP, or Offshore Voluntary Disclosure Program, Compliance;
2. Expatriation;
3. High-Income Nonfilers; and
4. U.S. Territories, Erroneous Refundable Credits.

All four efforts will be led by John Cardone, director of withholding and international individual compliance for LB&I.

The two other campaigns are:

1. S Corporations' Built-in Gains Tax and
2. Section 457A Deferred Compensation Attributable to Services Performed Before Jan. 1, 2009.

The campaign on post-OVDP compliance is meant to provide U.S. taxpayers a way to voluntarily resolve returns deemed noncompliant because of past unreported foreign financial assets and a failure to file foreign-information returns. The IRS last September officially ended the OVDP after nine years of existence, though it said taxpayers would still be able to come forward with noncompliance matters for the next several years.

The IRS said it would address post-OVDP tax noncompliance through soft letters and examinations. In a memo last November, two months after the program's end, the agency detailed a new process for delinquent taxpayers who may wish to avoid criminal prosecution by divulging assets they had willfully failed to report in the past.

The process requires taxpayers to request “pre-clearance” for participation from the IRS Criminal Investigation Division, after which civil examiners determine tax liabilities and penalties. The civil penalties, which may be assessed for fraud or the fraudulent failure to file income tax returns, could be higher than what would have been assessed under the OVDP.

The Expatriation campaign affects U.S. citizens and “long-term residents,” defined as lawful permanent residents in eight out of the past 15 taxable years, who settled abroad on or after June 17, 2008, and may not have met their filing requirements or tax obligations. For such individuals, the IRS said it would address noncompliance through a mix of outreach, soft letters and examinations.

The High-Income Nonfiler campaign will use an examination-based treatment stream to bring into compliance U.S. citizens and resident aliens who have income from abroad but haven't filed returns here.

The fourth international campaign, U.S. Territories, Erroneous Refundable Credits, will use outreach and traditional examinations to bring into compliance bona fide residents of U.S. territories who mistakenly claim refundable tax credits on Form 1040 for individual U.S. filers.

LB&I's operations are also divided among six domestic sectors:

1. communications, technology and media;
2. financial services;
3. heavy manufacturing and pharmaceuticals;
4. natural resources and construction;
5. retail, food, transportation and health care; and
6. global high wealth.

Have an IRS Audit Problem?

 

Contact the Tax Lawyers at

Marini & Associates, P.A. 

 

 for a FREE Tax Consultation Contact US at

www.TaxAid.com or www.OVDPLaw.com

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



Senate OKs Tax Treaties With Spain, Japan, Switzerland & Luxembourg

According to Law360, The U.S. Senate on July 17, 2019 approved three bilateral tax treaties with Switzerland, Luxembourg and Japan, one day after approving a treaty with Spain.

The Senate overwhelmingly approved the treaty protocols, which are, in part, designed to help prevent companies from being subject to double taxation. The Swiss treaty passed by a 95-2 vote, the Japanese treaty by a 95-2 vote, and Luxembourg was approved by a 93-3 vote.

The treaties were approved after years of inaction on the agreements, a development welcomed by a trade group that represents multinational corporations.

“Income tax treaties play a critical role in fostering U.S. bilateral trade and investment and protecting U.S. businesses, large and small, from double taxation of the income they earn from selling goods and services in foreign markets,” said Catherine Schultz, vice president for tax policy at the National Foreign Trade Council, which has been advocating passage of the tax treaties for years.

The treaties had been held up by Sen. Rand Paul, R-Ky., since he joined the chamber in 2011.

Speaking from the Senate floor before the vote on Spain’s treaty, Paul said that he believed the treaties’ latitude for intergovernmental information sharing was too broad and would risk the privacy rights of Americans living abroad.

Paul also said he had been engaged in productive talks with the U.S. Department of the Treasury to resolve his concerns until GOP leadership intervened in the conversation about the treaties. As a result of that intervention, Treasury lost its “zeal” to negotiate, Paul previously told Law360.

Paul was joined by Sen. Mike Lee, R-Utah, in voting against all four treaties. Sen. Dick Durbin, D-Ill., also voted against the tax treaty with Luxembourg.

Lee objected to the treaties because he's concerned with the privacy of American taxpayers, Conn Carroll, the senator’s communications director Conn Carroll, told Law360.

Durbin, meanwhile, objected to the Senate's process of considering the treaty with Luxembourg rather than its content.

The fact that the Senate voted on the treaty 10 years after it was signed "is not an example of due diligence but rather unnecessary & embarrassing delay," Durbin said on Twitter.

Durbin did not immediately return a request for comment.

Now that the Senate has voted to approve the four tax treaties, attention at the committee level may now return to three others that are still pending:

those with Poland, Hungary and Chile.

The Senate Foreign Relations Committee delayed consideration of those three because of reservations requested by Treasury regarding the base erosion and anti-abuse tax provision created by the Tax Cuts and Jobs Act.

The U.S. may need to renegotiate treaties that are approved by the Senate with reservations, a concern that the committee's ranking member, Sen. Bob Menendez, D-N.J., expressed in a recent letter to Treasury.

But lawmakers remain committed to approving those treaties as well, Sen. Ben Cardin, D-Md., who sits on the Foreign Relations Committee, told Law360.

Have an International Tax Problem?

 

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

 

 for a FREE Tax Consultation Contact US at

www.TaxAid.com or www.OVDPLaw.com

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

 

 

Gov't Received 39% of Projected 965 Income - Expect Increased IRS Audit of Forms 5471

According to Law360, although taxpayers have already calculated and reported their Section 965 deemed repatriation tax, Section 965 will have a continuing impact.

 

1. Taxpayers are well advised to review their approach to estimated taxes. The IRS refuses to issue refunds of overpaid income taxes to taxpayers who elected to pay Section 965 taxes in annual installments, effectively penalizing taxpayers who conservatively overpay estimated taxes. and
2. The IRS plans extensive enforcement efforts. A recent U.S. Treasury Inspector General for Tax Administration report highlights these issues, including recommendations for the IRS concerning the IRS enforcement plan.

By making the tax payable in installments, and providing that the installments increase over the eight year period, it is clear that Congress intended taxpayers to be able to plan for the potentially large Section 965 repatriation tax. Unfortunately, such cash flow planning may be frustrated by the IRS’ position that it cannot issue refunds to companies who have elected to pay the repatriation tax in installments.

 

The IRS Claims In Such Circumstances There Is No "Overpayment" Of Taxes Under Section 6402 Because, In The Case Of Taxes Payable In Installments, Section 6403 Requires The IRS To Apply An Overpayment Of An Installment

Against Future Unpaid Installments.

(IRS PMTA 2018-016, Overpayments and I.R.C. §965(h) (August 2, 2018)).

 

The deemed repatriation tax was intended to be one of the most significant revenue raisers of the Tax Cuts and Jobs Act. At the time of enactment, the Joint Committee of Taxation estimated that Section 965 would raise $338.8 billion of tax revenue during fiscal years 2018 through 2027. More than $78 billion was expected to be raised in 2018 alone. (Joint Comm. on Taxation, JCX-67-17, Estimated Budget Effects Of The Conference Agreement For H.R. 1, The “Tax Cuts And Jobs Act” at 6, available at https://www.jct.gov/publications.html?func=startdown&id=5053).

The Section 965 Revenue Actually Collected Is

Much Lower Than Expected.

 

TIGTA Reported That As Of Nov. 8, 2018, Taxpayers Reported Only $30.2 Billion (39%) In Section 965 Tax And Paid Only $11.2 Billion (Deferring $22.7 Billion).

Both TIGTA and the IRS believe these figures may be understated. The IRS said the numbers will likely change significantly because the IRS had not yet processed all the returns filed with extensions in October 2018. The lower than expected Section 965 revenue may trigger enhanced compliance efforts by the IRS.

 

TIGTA stated that “[i]t is essential that the IRS develop a service-wide compliance strategy to ensure compliance with Section 965 of the Act.” TIGTA recommended that the comprehensive plan include:

• A strategy to identify taxpayers that did not properly comply with Section 965;
• An assessment of the benefit of issuing notices to those taxpayers that may be subject to Section 965 filing requirements;
• Procedures to monitor taxpayers that elected to defer the tax;
• Validation of Section 965 data reported by the taxpayer; and
• Steps to ensure that taxpayers did not violate anti-abuse rules.

TIGTA also suggested that the IRS use Form 5471, Information Return of U.S. Person With Respect to Certain Foreign Corporations, to identify taxpayers who should have reported the Section 965 tax but did not.

Based on the number of returns filed with Forms 5471, TIGTA estimates that more than 51,000 filers may be subject to the Section 965 tax, which is significantly more than the approximately 31,000 filers (61%) who reported the Section 965 tax.

Have an International Tax Problem?

 

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

 

 for a FREE Tax Consultation Contact US at

www.TaxAid.com or www.OVDPLaw.com

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