HSBC India Client Indicted by U.S. Over $8.7 Million Account

Sept. 28 (Bloomberg) --  A Wisconsin neurosurgeon was re- indicted by a U.S. grand jury on new charges that he failed to declare an HSBC Holdings Plc account in India valued in 2009 at $8.7 million.

Arvind Ahuja was indicted again by a federal grand jury in Milwaukee, where he was initially charged June 28 with concealing accounts from the Internal Revenue Service. The nine- count indictment added a charge that Ahuja conspired with two HSBC India bankers to defraud the IRS from 2006 to 2009.

The charges against Ahuja come amid a widening U.S. crackdown on offshore tax evasion that includes grand jury investigations of eight foreign banks. Prosecutors have filed criminal tax charges against more than three dozen former U.S. clients of UBS AG and Credit Suisse Group AG, Switzerland’s two biggest banks, and London-based HSBC, Europe’s biggest bank.

Ahuja took steps to hide his offshore accounts, according to the indictment made public today. In 2007, an HSBC India banker told a colleague that Ahuja “has requested that he does not want any kind of mail at his US or India address,” according to the indictment. “He wants a HOLD on all his accounts.”

Prosecutors said Ahuja failed to report more than $1.2 million in interest income, pay taxes due or file Reports of Foreign Bank and Financial Accounts, or FBARs.

In New Jersey a businessman Vaibhav Dahake pleaded guilty in April to conspiring with five HBSC bankers to hide his Indian accounts from the IRS. His plea came four days after a U.S. judge in California gave permission to the IRS to serve a so- called John Doe summons on HSBC for information about Americans who may have banked in India to hide accounts from U.S. tax authorities.

In both the Dahake and Ahuja cases, prosecutors said HSBC ran a U.S. division called NRI Services that marketed offshore banking services to U.S. citizens of Indian descent. Through NRI, HSBC India “encouraged U.S. citizens to open undeclared bank accounts in India,” according to the Ahuja indictment.

If convicted, Ahuja, who lives in Greendale, Wisconsin, faces as long as 10 years in prison on the FBAR charges, five years on conspiracy and three years on charges of filing false tax returns.

FATCA Postponed - Implementation Time Table

 IRS Notice 2011-53 delays both the FATCA §1471 withholding and reporting requirements one year to January 1, 2014, and phases in those requirements over two years starting in 2014.

The revised version of Notice 2011-53 extends the application of the phase-in to §1472 as well. 

We have provided a Table Below listing the details of the time schedule as it relates to FATCA implementation.

This delay in the withholding and reporting procedures should allow enough time to permit FFIs to build their computer systems, request and receive any required regulatory approvals, and train appropriate personnel to comply with the rules.

Of course, whether enough time has been provided depends on the resolution of the conflict-of-law issues and the promulgation of proposed regulations by December 31, 2011, and final regulations by the summer of 2012.

Implementation of FATCA Requirements

Execution of FFI Agreements
Date on which the IRS will begin accepting applications to enter into FFI Agreements.	January 1, 2013
Last date to enter into an FFI Agreement to ensure that there is no withholding beginning on January 1, 2014. The effective date of all FFI Agreements entered into before July 1, 2013, will be July 1, 2013. FFI Agreements entered into after June 30, 2013, may not forestall withholding beginning on January 1, 2014.	June 30, 2013

Reporting of U.S. Accounts Due Diligence New Accounts Transition Date Under Notice 2011-53 Participating FFIs must implement account opening procedures described in Notice 2010-60 to identify U.S. accounts. On or after the effective date of the FFIA Pre-Existing Accounts Transition Date Under Notice 2011-53 Large Private Banking Accounts. Completion of Step 3 (Notice 2011-34) due diligence for private bank accounts with balances or values greater than or equal to $500,000. Within one year of the effective date of the FFIA Smaller Private Banking Accounts. Completion of private banking procedures for pre-existing private bank accounts with balances or values less than $500,000. Later of December 31, 2014, or one year after the effective date of the FFIA All Other Pre-Existing Accounts. Completion of due diligence procedures in Notices 2010-60 and 2011-34. Two years after the effective date of the FFIA
New Accounts, Documented U.S. Accounts,	Transition Date Under 2011-53
and Private Banking Accounts
Limited Reporting for First Year: This limited reporting also applies to FFIs that elect to report as a U.S. FFI under §1471(c)(2) • Name, address, and U.S. TIN of each U.S. person who is an account holder or, if the account is owned by a U.S.-owned foreign entity, name, address, and U.S. TIN of each substantial U.S. owner; • The account balance as of December 31, 2013, or, for closed accounts, the balance immediately before closure; and • The account number. May elect to report under Notice 2011-34. Must report any recalcitrant account holders.	Form W-9 received by June 30, 2014, must be reported to IRS by September 30, 2014
Post-2013 Years
Reporting in accordance with Notice 2011-34 as implemented in future regulations.

Withholding
Types of Withholdable Payments	Transition Date Under Notice 2011-53
U.S.-Source FDAP Payments (e.g., interest, dividends, royalties, rent, etc.).	Payments made on or after January 1, 2014
Gross Proceeds (i.e., gross proceeds from the sale of assets that produce or may produce U.S.-source FDAP income).	Payments made on or after January 1, 2015
Passthru Payments. Note that a U.S.-source FDAP payment that also would be a passthru payment is subject to the January 1, 2014, effective date.	Payments made on or after January 1, 2015

Other
Expiring QI, WFP, and WFT Agreements	Transition Date Under Notice 2011-53
Original expiration date of December 31, 2012	Automatic extension until December 31, 2013

Lack of Meaningful Participation in Prior Case Provides Innocent Spouse Relief

The husband of a gambler who did not know that his wife was inaccurately reporting her gambling losses did not “participate meaningfully” in a prior Tax Court deficiency case the U.S. Tax Court held Sept. 26 and thus he is entitled to innocent spouse relief (Harbin v. Commissioner, T.C., No. 9994-07, 137 T.C. No. 7, 9/26/11).

Tax Court Judge Diane Kroupa found that intervenor Bernice Nalls, the spouse of petitioner Leonard Harbin “effectively exercised exclusive control over the prior deficiency case as it related to the deficiencies at issue” which she said “stemmed from intervenor's gambling activities.” Kroupa said that Harbin depended on Nalls to contest the deficiencies at issue and Harbin only participated in the prior deficiency case through a lawyer's representation.

Attorney James E. Caldwell represented both Harbin and Nalls in the 2004—2005 Tax Court litigation which included claimed deductions for gambling losses (Docket No. 10774-04). In the litigation, the couple and the Internal Revenue Service executed a stipulated decision that petitioner and his spouse owed deficiencies and accuracy-related penalties for 1999 and 2000.

Caldwell did not explain the advantages and risks of joint representation to Harbin, Kroupa said, and Caldwell proceeded with the joint representation of Harbin and Nalls “despite the conflict of interest.” Caldwell also represented both Harbin and Nalls “in their contentious divorce” which was finalized in 2004.

Text of this decision is available at http://www.ustaxcourt.gov/InOpHistoric/HarbinDiv.TC.WPD.pdf

M&A Land Mark Victory cited in recent Florida Tech Advice

Florida - Gambling Ship Eligible for Exemption on Certain Receipts, Advisory Explains

SUMMARY

Facts: The taxpayer is a Florida Limited Liability Company organized in the state of Florida. The taxpayer will operate a gaming and entertainment ship, which will operate out of the Port Authority, Florida.

Question: Is the taxpayer eligible for the partial exemption provided for in s. 212.08(8), F.S., on the purchase of the vessel used in the operation of the “cruise to nowhere”?

Answer: Yes. Pursuant to the recent Florida Supreme Court case, Department of Revenue vs. New Sea Escape Cruises, Ltd., 894 So.2d 954 (Fla. 2005), the taxpayer is eligible for the partial exemption provided in s. 212.08(8), F.S.

For more information go to https://taxlaw.state.fl.us/wordfiles/SUT%20TAA3%2011A-024.pdf

U.S. campaign to catch tax cheats snaring Canadians

As U.S. tax authorities move to crack down on citizens living abroad, many living in Canada have been caught up in fear of massive penalties.

Esther Thompson, 70, and her sister Betty, 69, both married to retired farmers living near Prince Albert, Sask., are among those who have come unhappily forward to the U.S. Internal Revenue Service under a voluntary disclosure program.

Unlike Canada, the United States requires its citizens, not just residents, to file tax returns and report their worldwide income.

Both Thompson sisters share joint accounts with their husbands and worry that penalties will be assessed on the days in which the accounts held significant sums after a big grain sale, for example, despite the fact that they were quickly drained to pay bills.

What’s more, the U.S. Foreign Account Tax Compliance Act (FATCA) will require Canadian financial institutions to disclose information about U.S. citizens who hold Canadian financial accounts or risk withholding taxes of 30% on all payments out of the United States. The FATCA requirements will kick in in 2014 and mean that many more Canadians will be identified to the U.S. authorities and could face harsh penalties on money they may no longer even have.

Yet, there are many Canadians with connections to the United States. Some estimates say there are 1 million living in the country. More than 316,000 people listed American as their “ethnic origin” in the 2006 census.

For more go to Financial Post

IRS Official Stresses January Due Date for Estate Carryover Election

Taxpayers will not be given any extensions to file Form 8939 that is due in January for the estate tax carryover basis election, an Internal Revenue official said Sept. 21.

Taxpayers who want to make the tax code Section 1022 election and not opt for the estate tax for 2010 should fill out Form 8939 in a timely manner before it is due Jan. 17, 2012, said Catherine Hughes, estate and gift tax attorney-adviser with the Treasury Department, at a panel for the D.C. Bar Taxation Section Estate Planning Committee. The Economic Growth and Tax Relief Reconciliation Act of 2001 gave estates of individuals dying in 2010 a choice between paying estate tax on property transferred to a beneficiary or having the modified carryover basis rules apply.

Earlier in September, IRS released guidance announcing the January date for filling out the form to elect into the carryover basis regime. Taxpayers cannot revoke the form or file for the first time after that date, Hughes said. Taxpayers who want to change or make an allocation on the form can do so as long as it is done before the due date, Hughes said. After that date, there will be no extensions and relief will be limited, she said.

IRS Tells Examiners to Step Up Scrutiny of Captive Foreign Insurance Subsidiaries

The Internal Revenue Service Sept. 19 told its examiners to more closely scrutinize captive foreign insurance subsidiaries during excise tax audits of foreign insurance companies.

The new memorandum (SBSE-04-1811-070) is the latest development in a continued crackdown on the use of these subsidiaries to avoid taxes.

In the Aug. 9 document, released on the web Sept. 19, IRS told agents to check whether captive subsidiaries have engaged in closing agreements with the service and whether there is additional information relating to controlled industry cases.

The guidance outlined a detailed list of other issues agents must look for. It follows a series of other documents unveiled by IRS over the past year indicating the agency is not only looking closely at such subsidiaries, but may be auditing them individually.

Text of SBSE-04-1811-070 is available at http://op.bna.com/dt.nsf/r?Open=vmar-8lvtms.

Eight offshore banks are under federal grand jury investigation

Bloomberg - By Carla Main - Sep 21, 2011 8:05 AM ET

Eight offshore banks are under federal grand jury investigation for facilitating tax evasion by U.S. citizens as part of a probe the Justice Department said has dealt “fabled Swiss bank secrecy a devastating blow.”

The department disclosed the probes on a section of its website detailing the Tax Division’s Offshore Compliance Initiative. In 2009, prosecutors charged UBS AG, the largest Swiss bank, with aiding tax evasion by U.S. clients. UBS avoided prosecution by paying $780 million, admitting it fostered tax evasion, and giving the U.S. Internal Revenue Service data on more than 250 accounts. It later turned over data on another 4,450 accounts.
Prosecutors opened 150 grand jury investigations of offshore-banking clients, charging 30 people, and indicting 13 other people who facilitated the hiding of assets offshore, according to the website.

U.S. tax-evasion probe turns to Israeli banks

The U.S. pursuit of offshore tax evaders is widening to include Israel, where U.S. authorities are scrutinizing three of Israel's largest banks over suspicions their Swiss outposts helped American clients evade taxes, people briefed on the matter said.

The banks under scrutiny by the U.S. Justice Department's criminal tax division are Bank Hapoalim, Bank Leumi le-Israel BM and Mizrahi-Tefahot, the sources said.

The shift to Israel from Switzerland, for years the main focus of the Justice Department's campaign against offshore private banking secrecy, signals the broadening of a landmark probe by the agency that began in 2007 with UBS AG, Switzerland's largest bank.

The shift also opens up a potential sore spot in the historically close relationship between the United States and Israel, a key diplomatic and military ally in the Middle East that is the biggest recipient of U.S. aid -- $3.1 billion last year.

U.S.-Israeli relations have come under strain in the past year, after U.S. President Barack Obama's drive to relaunch direct peace talks between Israel and the Palestinians collapsed, although both sides say their decades-old alliance remains unshaken.

The scrutiny of the three Swiss branches of the Israeli banks is at an early stage and has not reached the level of that of Credit Suisse, which received a target letter from the Justice Department in July, or of HSBC Holdings, a major European bank, and Basler Kantonalbank, a Swiss cantonal bank, said the people briefed on the matter.

IRS Offer-in-Compromise Program Reduces Requirements & Raises Thresholds

The streamlined IRS offer-in-compromise program will decrease the required financial information from taxpayers in an effort to bring more of them into the program, Faris Fink, IRS Small Business/Self Employed Division commissioner, said Sept. 15.

Speaking at a tax controversy conference in Washington, Fink said IRS would raise the threshold to include individuals with an annual household income of $100,000 and less than $50,000 in tax liability.

The new program allows greater flexibility in considering an individual's ability to pay, he said. “It truly is a departure from past practice to open that program up a little wider in a less abrasive fashion in our centralized sites.” In addition, documentation and verification requirements have been reduced.

Fink said the program is geared toward wage earners who are unemployed and struggling, and self-employed individuals who have no employees.

Furthermore, Fink said, IRS has adopted the “novel” approach of calling people to get additional information instead of sending them letters. This has immeasurably cut down the time needed to process offers, he said.

IRS Audits Will Focus on High-Income, High-Wealth Taxpayers, SB/SE Official Says

The Internal Revenue Service's examination team will focus on high-income, high-wealth taxpayers, paying close attention to those with a tax liability that is significantly reduced through the use of multiple entities, an official said Sept. 15.

The agency is paying attention to individuals with an income level that is not “huge,” but has wealth and a lower tax liability because of flow-throughs, trusts, and other similar entities, said Linda Franke, a senior level adviser with the Small Business/Self Employed Division, at an American Law Institute-American Bar Association tax controversy conference.

IRS will focus on individuals with an income of $250,000 or more and total positive income of at least $1 million, she said. This process will mostly be done corporately with field offices doing the examinations, supplemented by office examinations, Franke said.

IRS also is interested in bringing nonfilers into compliance, so it will pay close attention to taxpayers with multiple years of nonfiling.

Offshore Voluntary Disclosure Initiative Draws 12,000 Taxpayers

The Internal Revenue Service said in a news release (IR-2011-94) announced Sept. 15 that his agency's program to encourage taxpayers to tell the government about their offshore assets has attracted 12,000 participants.

On top of that, IRS said it has garnered an additional $500 million in taxes and interest as down payments for the 2011 program, “a figure that will increase because it doesn't yet include penalties.”

The OVDI is the second time IRS has offered a set penalty structure and the chance to avoid criminal prosecution as an incentive for disclosure. The first such program drew 15,000 participants in 2009, with an extra 3,000 coming in after the program technically closed.

IRS Extends Time for Executors of Estates to File Returns and to Pay the Estate Tax

The Internal Revenue Service issued Notice 2011-76 Sept. 13 granting executors of estates of people who died in 2010 and who timely file Form 4768 an automatic extension of time to file an estate tax return and to pay the estate tax due.

The notice also revises the due date of Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent. In addition, it provides penalty relief to certain people who acquired property, the basis of which is determined under Section 1022, and disposed of such property during 2010. This notice applies to each executor of a 2010 estate and to recipients of property acquired from decedents who died in 2010.

Fifth Amendment Privilege Does Not Apply to Swiss Banking Records

M.H. v. U.S. (In re: Grand Jury Investigation M.H.), (9th Cir. 8/19/11): 

Facts: Taxpayer (T) is the target of a grand jury investigation seeking to determine whether he used secret Swiss bank accounts to evade paying federal taxes. Records were sought as part of the grand jury's investigation. Under its deferred prosecution agreement with the U.S. government, Bank 1 provided records showing that T transferred securities from his Swiss Bank 1 account to a Swiss account with Bank 2 in 2002.

A district court granted a motion to compel T's compliance with the grand jury subpoena duces tecum demanding that he produce certain records related to his foreign bank accounts under the Required Records Doctrine. The court declined to condition the order compelling production upon a grant of limited immunity under the recalcitrant witness statute and held T in contempt.

On appeal, T argued that if he provides the information sought, he risks incriminating himself in violation of his Fifth Amendment privilege. T argued that the information he has been asked to produce might conflict with other information he has previously reported to the IRS, thereby incriminating himself by revealing amounts that he has not reported or that information he has previously reported was inaccurate. Additionally, T said that if he denies having the records, he risks incriminating himself because failing to keep the information when required is a felony.

Holding: Under the Fifth Amendment to the U.S. Constitution, a taxpayer may refuse to answer specific questions or produce specific records if it would violate his or her privilege against self-incrimination. In a recent appellate case, the taxpayer was under a grand jury investigation as to whether he used undisclosed Swiss bank accounts to evade taxes. The taxpayer claimed that the Fifth Amendment protected him from having to provide his records relating to his foreign bank accounts. More specifically, a subpoena was issued for the taxpayer to produce “[a]ny and all records required to be maintained pursuant to

31 C.F.R. § 103.32 (subsequently relocated to 31 C.F.R. § 1010.420) relating to foreign financial accounts that you had/have a financial interest in, or signature authority over, including records reflecting the name in which each such account is maintained, the number or other designation of such account, the name and address of the foreign bank or other person with whom such account is maintained, the type of such account, and the maximum value of each such account during each specified year.

The information identified in the subpoena mirrors the banking information that 31 C.F.R. § 1010.420 2 requires taxpayers using offshore bank accounts to keep and maintain for government inspection.

The information the subpoena seeks is also identical to information that anyone subject to § 1010.420 already reports to the IRS annually through Form TD F 90-22.1, known as a “Report of Foreign Bank and Financial Accounts,” or “FBAR.”

The taxpayer argued that the information he provided could be used to prosecute him criminally if it conflicts with other information he provided to the IRS. He also argued that if he had to deny he had such information, he could be guilty of a felony of not meeting legal requirements to maintain such records.
 

Notwithstanding the risk of criminal prosecution relating to responding to the record requests, the Ninth Circuit Court of Appeals held that the Fifth Amendment privilege did not apply under the “Required Records Doctrine.” This exception to the privilege applies under Grosso v. U.S., 21 AFTR 2d 554 (S Ct 1968) if:

 

    a. The purpose of the government’s inquiry is regulatory and not criminal prosecution. Here, the government’s purpose under the Bank Secrecy Act was essentially regulatory. It was important to the Court that the activity being regulated (participation in offshore banking) is not inherently unlawful, and thus information reporting in regard to it is not essentially related to criminal prosecution.

 

   b. And, the information requested is contained in documents of a kind the regulated party customarily keeps. In this situation, bank customers would generally keep basic account information both to comply with required reporting of offshore bank information and to be able to access their accounts.

   c. And, the records have public aspects which render them at least analogous to public documents. The records here had public aspects because individuals had to retain them for five years and provide them to the government upon request. Further, such records were required to be kept to aid in the enforcement of a valid regulatory scheme.

Thus, taxpayers under investigation in regard to offshore bank accounts will not be able to rely on the Fifth Amendment to deny access to their banking records.

FLORIDA 2011 PROBATE & TRUST CHANGES

     On April 14, 2011 and April 29, 2011, the Florida legislature enacted several significant changes to the probate and trust code (hereinafter referred to as “legislation”). The bill was signed by the Governor on June 21, 2011. Some of the key sections of the legislation became effective on July 1, 2011 and others will become effective on October 1, 2011. In essence, the legislation creates or substantially modifies the following subject matters: I) Intestate succession; II) Reformation of a will; III) Challenges to revocation of a will and trust; IV) Attorney-client privilege relating to fiduciaries; and V) Timing for requesting attorney’s fees in a trust matter. The author urges probate and trust litigators to review the entire legislation because it contains nuances not fully addressed in this article.

Intestate Succession

     When a decedent dies without a will, the assets are distributed according to the laws of intestacy. Currently, the intestate share of a surviving spouse where all of the decedent’s descendants are also descendants of the surviving spouse is the first $60,000.00 and half of the remaining estate. Effective October 1, 2011, the legislation amends Florida Statute § 732.102(2) so that the intestate share of a surviving spouse of a decedent where all of the decedent’s descendants are also descendants of the surviving spouse (or if there are no descendants) is the entire estate. The legislation also creates Florida Statute § 732.102(4) to provide that if the surviving spouse has descendants that are also the decedent’s descendants and has descendants not related to the decedent, the surviving spouse’s intestate share is half of the estate.

Reformation of a Will

     Reformation of a testamentary document is an effective, yet often times overlooked, probate litigator’s technique to reform a document to conform to the settlor’s intent. Since 1998, Florida case law permitted reformation of a trust instrument to correct a mistake. See In re Estate of Robinson, 720 So. 2d 540 (Fla. 4th DCA 1998). In 2007, the Florida legislature codified and expanded common law to permit reformation to correct a trust to cure a mistake as well as reformation of a trust to achieve a settlor’s tax objectives. (See Fla.Stats. §§ 736.0415 and 736.0416).

     Effective July 1, 2011, the legislation created Florida Statutes §§ 732.615 and 732.616. These statutes mirror the above-referenced trust code statutes to permit reformation of a will to correct a mistake and to modify a will to achieve a testator’s tax objectives.

The mistake statute, Florida Statute § 732.615, allows an interested person to seek reformation of the terms of a will to conform to the testator’s intent, and provides a burden of proof of clear and convincing evidence. The statute even permits reformation that is completely inconsistent with the apparent terms of the will.

     The tax modification statute, Florida Statute § 732.616, permits an interested person to seek reformation of the terms of a will to achieve a testator’s tax objectives in a manner that is not contrary to the testator’s “probable intent.” These statutes are significant because reformation of an unambiguous will was previously never permitted by case law or statute. In addition, the legislation creates Florida Statute § 732.1061 which requires that in actions under reformation of a will to correct a mistake and modification of a will to achieve tax objectives, the court must award attorney’s fees and costs to the prevailing party. Nonetheless, the statute also gives the court discretion in awarding and allocating fees using the concept of equity.

Challenges to Revocation of a Will and Trust

     Florida law provides that a will or trust is void if procured by fraud, duress, mistake or undue influence. A testator or settlor may revoke a will or trust by writing or act. Until the legislation, there was no mechanism to challenge a revocation of a will or trust by physical act based upon fraud, duress, mistake or undue influence. The legislation amends Florida Statutes §§ 732.5165 and 736.0406 to provide that revocation of a will or trust is void if procured by undue influence, fraud, duress or mistake. A challenge to the revocation of a testamentary document cannot take place until the instrument becomes irrevocable or at the settlor’s demise.

Attorney-client Privilege relating to Fiduciaries

     Florida law provides that communication between an attorney and the client is confidential if it is not intended to be disclosed to third parties. The legislation clarifies and expands existing law so that communication between a fiduciary client and the attorney is confidential and privileged. (See Fla. Stat. § 90.5021). The legislation also amends Florida Statutes §§ 733.212(2)(b) and 736.0813 which create new reporting requirements for personal representatives and trustees. The reporting requirement compels personal representatives and trustees to provide notice to the beneficiaries that an attorney- client privilege exists between the fiduciary and the attorney employed by the fiduciary. (See Fla. Stats. §§ 733.212(2)(b) and 736.0813).

Timing for Requesting Attorney’s Fees in a Trust Matter

     The Florida Trust Code provides that trust proceedings are governed by the Florida Rules of Civil Procedure. In civil litigation, Florida Rule of Civil Procedure 1.525 is commonly used which requires a party to serve a motion seeking fees or costs within 30 days after the filing of a judgment. By amending Florida Statute § 736.0201(1), the legislation clarifies and confirms that Florida Rule of Civil Procedure 1.525 applies to all judicial proceedings concerning trusts.

     The legislation also creates Florida Statute § 736.0201(6) which states that Florida Rule of Civil Procedure 1.525 applies to all judicial proceedings concerning trusts, but provides the following two exceptions:

A trustee’s payment of compensation or reimbursement of costs to persons employed by the trustee from assets of the trust and

A determination by the court directing from what part of the trust fees or costs shall be paid, unless the determination is made under s. 736.1004 in an action for breach of fiduciary duty or challenging the exercise of, or failure to exercise, a trustee’s powers.

U.S. readies papers v. Swiss banks on tax evasion

Sat Sep 10, 2011 12:50am BST
(Reuters) - The United States is drafting legal documents that seek to force nearly a dozen Swiss banks and international banks with Swiss branches to disclose the identities of American clients evading billions of dollars in taxes, sources briefed on the matter said. The drafting of the documents -- grand jury subpoenas and broad requests known as John Doe summonses -- is a fresh U.S. shot across the bow at Switzerland and its battered tradition of bank secrecy.

The Alpine country, a noted tax haven that is the global capital of offshore private banking, has been under attack from U.S. Justice Department and Internal Revenue Service officials conducting a broad criminal investigation into private banking services that U.S. authorities say enabled wealthy Americans to evade billions of dollars in taxes.

The documents could be served within a month or so on 10 banks, including some with headquarters outside Switzerland, these persons said.

The legal pressure signals a new front in Washington's fight against Swiss bank secrecy, a battle that in recent years has resulted in scores of Swiss bankers and advisers being charged, dozens of American clients indicted and several large banks investigated.

The Justice Department served a target letter in July on Credit Suisse AG (CSGN.VX), Switzerland's second-largest bank, notifying it that it was the focus of a criminal investigation. American authorities also are probing HSBC (HSBA.L) and smaller Swiss private banks and cantonal banks, including Basler Kantonalbank, Wegelin and Julius Baer (BAER.VX).

Talks between the Swiss and U.S. governments to resolve the broad investigation broke down in June. Switzerland wants its banks to pay a multi-billion dollar fine, but the U.S. side wants client names as well.

For more information go to http://uk.reuters.com/article/2011/09/09/uk-usa-swissbank-subpoenas-idUKTRE7887BH20110909 

OVDI Ends Today - The Going Gets Tougher!

With 7 million Americans living overseas - but just 462,340 filing US Tax Returns every year - the IRS is certain to get tougher after today. Filing any “delinquent” returns in the next few weeks has to be sensible before the IRS dream up even worse penalties!

http://www.irs.gov/pub/irs-utl/1_09_tas_arc_vol_1_preface_toc_msp.pdf

More Tax Problems for U.S. Citizens with Foreign Bank Accounts in Israel

On August 28, 2011, the Supervisor of Banks at the Bank of Israel and the supervisory authorities in the US––the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation––signed a Statement of Cooperation. The Governor of the Bank of Israel, Prof. Stanley Fischer, confirmed the signing of the document.

The signing of the Statement of Cooperation is intended to formalize and strengthen the cooperation between the Banking Supervision in Israel and the supervisory authorities in the US, in order to facilitate the process of supervising banks incorporated in both countries for purposes of cross-border activity, and to promote the safe and sound functioning of those banks. The Statement of Cooperation also reflects the commitment of the above mentioned authorities to the principles of consolidated supervision and cooperation among banking regulators.

 The Statement of Cooperation establishes a mechanism for the transfer of information between the authorities in the context of the authorization process of establishing cross-border banking activity in the US or Israel, and in the context of their ongoing function as regulators of banking activity.

 The Statement of Corporation also regularizes the cooperation in supervisory processes carried out by each of the authorities, including those related to planned inspections of cross-border establishments, the identification of suspected money-laundering activity or the financing of terrorism, and banking activity without a permit. The Statement of Cooperation also deals with the sharing of information about banks in Israel and the US under common ownership or control.

The Supervisor of Banks, David Zaken: "The arrangements set out in the Statement of Cooperation are expected to boost cooperation with the US authorities with regard to the supervision of Israeli overseas banking offices operating in the US and the overseas offices of US banks operating in Israel."

The announcement didn't specifically mention FBAR or foreign bank accounts, however, it appears that this will be just one more avenue for the Internal Revenue Service to pursue in locating U.S. citizens who have unreported bank accounts in Israel. According to the press release the Statement of Cooperation establishes a mechanism for the transfer of information between the authorities in the context of the authorization process of establishing cross-border banking activity in the US or Israel, and in the context of their ongoing function as regulators of banking activity.

When added to the ongoing grand jury investigations of Israeli banks, and the implementation of FATCA in 2013 it demonstrates the danger of continued non-reporting of foreign bank accounts-especially for dual Israeli citizens.

Swiss Banks Seek Negotiated Tax Settlement Amid Reports of U.S. ‘Ultimatum' on Details

Swiss banks are urging their government and the United States to reach a negotiated solution to their dispute over U.S. funds hidden away in Swiss banks, amid reports the U.S. Department of Justice has issued an “ultimatum” on the handover of information on undeclared accounts of U.S. taxpayers with Swiss banks.

According to Swiss media, over the weekend of Sept. 3, U.S. Deputy Attorney General James Cole wrote a letter Aug. 31 to the Swiss government insisting that Swiss authorities hand over information on hidden U.S. funds in the country by Sept. 6. The letter specifically targeted Credit Suisse, the country’s second largest bank, as well as nine other private and regional banks, according to the reports.

Swiss media also that the Swiss financial industry regulator, was collecting information from the banks on all deposits by U.S. taxpayers of $50,000 or more between 2002 and July 2010.

Now that the implementation of FATCA has been postponed to the middle or end of 2013, the DOJ is reverting back to the process of requesting/summonsing information from other Swiss Banks; similar to its 2009 program which they successfully used against UBS; where the Swiss government was forced to eventually hand over detailed information on the accounts of U.S. taxpayers with the country’s largest bank.

IRS Releases Final Form 706 for Estate Tax Application in 2010

The Internal Revenue Service Sept. 3 released a final 2010 Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, to be filed for decedents who died in 2010.

Form 706 is one of two that will be used by estates choosing between the modified carryover basis regime and the estate tax for property transferred from a decedent in 2010. The instructions for the form have not yet been released.

Form 706 is available at http://www.irs.gov/pub/irs-pdf/f706.pdf.

New regulations provide that a evidence of a postmark is not sufficient to prove delivery

New regulations provide that a evidence of a postmark is not sufficient to prove delivery. ( T.D. 9543, 76 Fed. Reg. 52561 (8/23/11), amending Regs. §301.7502-1, by revising paragraphs (b)(2) and (e) and adding paragraphs (c)(3) and (g)(4)).

If a tax return preparer files returns, the preparer should either hand-deliver them to the IRS, use certified mail, or use an alternative described below.

When a preparer sends returns to clients, the preparer must consider not only recommending that the clients send the returns via certified mail but also:

 

• warn the clients that the failure to use certified mail might invalidate the returns, and

• encourage the clients to contact the preparer for alternative methods if certified mail does not work for the clients.

Private delivery services, such as UPS or FedEx, can also be used, but you should first confirm by looking at Notice 2004-83 , 2004-52 I.R.B. 1030 or any relevant guidance issued after that.

 

The IRS stated that it will be issuing more guidance on private delivery services.