Cross-Border Tax Enforcement Developments and Trends Where Are the U.S. Department of Justice and the IRS Headed?

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2 Cross-Border Tax Enforcement Developments and Trends Where Are the U.S. Department of Justice and the IRS Headed? Steven L. Cantor, Cantor & Webb Daniel W. Levy, McKool Smith February 6, 2015

3 Trends & Developments International Data Exchange Service ( IDES ) The bad bank list was expanded in December to include: Sovereign Management & Legal Ltd. (Panama) and Bank Leumi (Israel) Tax Advocate: problems remain with the IRS offshore voluntary disclosure program IRS panel at Florida Bar/FICPA International Tax Conference: disclosure programs are not going to be available forever Hiding funds in offshore accounts now included on IRS list of Dirty Dozen tax scams

4 Trends & Developments (cont.) Department of Justice s Swiss bank program expected to result in resolutions and data transmission in first half of 2015 Among data to be provided are transactional details for transfers to other banks ( leaver lists ) DoJ and IRS expected to use data provided by Swiss banks to make requests (TIEA, MLAT) to other countries Greater coordination of IRS and Department of Justice in administering OVDP Cross-border tax enforcement expected to remain a big priority for IRS-Criminal Investigation and Tax Division

5 Trends & Developments (cont.) Are IRS and DoJ moving beyond Switzerland? If so, to where? Continued use of John Doe summons process allows IRS to obtain information about unidentified taxpayers To date, IRS has targeted correspondent bank accounts of two Caribbean banks Butterfield and CIBC First Caribbean Recently (December 2014), IRS sought records related to Sovereign Management & Legal, Panama-based company service provider Implications of IRS/DoJ attacks on non-u.s. banks correspondent bank accounts are massive (e.g., Wegelin correspondent bank seizure)

6 Trends & Developments (cont.) Arrest of Caymans investment professionals/turks & Caicos lawyer (March 2014) DoJ resolution with Liechtenstein asset manager that had Caymans insurance subsidiary (April 2014) Civil forfeiture of funds held by Swiss lawyer/fiduciary that were used to buy real estate in the Bahamas (April 2014) Criminal prosecution of Russian national living in U.S.; accounts held in Switzerland in the name of Bahamian entities and initially funded by transfers from UBS Bahamas (March 2014)

7 Available Programs o Streamlined Foreign Offshore Program for taxpayers whose failure to file was the result of non-willful conduct - 3 years of income tax returns, 6 years of FBARs, must pay tax and interest, but no penalties; o Streamlined Foreign Domestic Program for taxpayers whose failure to file was the result of non-willful conduct - 3 years of income tax returns, 6 years of FBARs, must pay tax and interest and a 5% penalty based on value of foreign accounts and other unreported foreign assets;

8 Available Programs (cont.) o Offshore Voluntary Disclosure Program 8 years of income tax returns, 8 years of FBARs, must pay tax, interest and tax penalties (failure to file, late payment, accuracy), and a 27.5% penalty (or 50% if account at a bad bank ) based on value of foreign accounts and other unreported foreign assets. Full payment must be made at time of submission. o Offshore Voluntary Disclosure Program with Opt Out - 8 years of income tax returns, 8 years of FBARs, must pay tax, interest and tax penalties (failure to file, late payment, accuracy). Penalties will be determined in accordance with an examination. This may result in penalties less than the 27.5% OVDP penalty, but risk of willful FBAR penalty. Full payment (including the 27.5% penalty) must be made at time of submission.

9 Available Programs (cont.) o Delinquent Information Return Procedure if no additional tax owed, submit 6 years of unfiled information returns with reasonable cause explanation. If reasonable cause accepted, no penalties. o Delinquent FBAR Procedure if no unreported income from unreported account(s), submit 6 years of FBARs. No penalties. o All programs are available only if the taxpayer is not already under IRS investigation and has not received notification from the IRS regarding their reporting/filing failure.

10 Scenario N o 1 Client has lived his entire life in The Bahamas, but was born in the U.S. He never had a U.S. Social Security number but has a U.S. passport. He never spent a significant amount of time in the United States, but whenever he travels to the U.S. he uses his passport. The client has never filed any taxes in the U.S.

11 Scenario N o 2 Individual has lived most of their life in The Bahamas, but was born in the United States. From the years 1990 until 1997, has lived, worked and filed tax returns in the U.S. In 1997, individual went back to The Bahamas and hasn t filed anything in the U.S. since.

12 Scenario N o 3 A client born in the U.S., who moved to The Bahamas in She has filed U.S. income taxes every year until 2008, and hasn t filed anything since then. Client has ten million dollars in Sovereign Bank in Panama.

13 Scenario N o 4 Client is from Brazil. Client has a trust in The Bahamas and owns a Bahamian corporation that either a) owns an investment portfolio or b) conducts an act of trader business. Trustee consults with us with regard to the FATCA classification for the trust and for the company.

14 Steven L. Cantor Cantor & Webb, P.A Brickell Bay Drive, Suite 3112 Miami, FL Phone: (305) Fax: (305) Website: Contact Information Daniel W. Levy McKool Smith P.C. One Bryant Park, 47th Floor New York, NY Phone: (212) Fax: (212) Website: