irs headquarters sign in washington d.c.In a Dec. 1 2014 update, the Internal Revenue Service (“IRS”) stated that jurisdictions can continue to be treated as though they have an intergovernmental agreement (“IGA”) after Dec. 31, 2014, as long as the Treasury Department determines they are making efforts to finalize the agreement as soon as possible.

In a Dec. 22 update, the IRS clarified that foreign financial institutions still must have a certificate identifying them as being compliant with the international tax law to avoid certain withholdings. Those in jurisdictions that are treated as having IGAs must obtain a Global Intermediary Identification Number.

Secret Foreign Bank Accounts

Secret Foreign Bank Accounts are not secret anymoreSecret foreign bank accounts have been at the center of money laundering. This is especially with reference to offshore bank accounts.  It is very common for people to hide money in secret foreign bank accounts in other countries in an effort to avoid paying taxes on the monies.

A Case Where a Businessmen & Attorney Collude to Hide Money in Secret Foreign Bank Accounts

In the case, United States v. Kerr, D. Ariz., No. 2:11-cr-02385, which Bloomberg reports, two businessmen and an attorney were charged in U.S. District Court for the District of Arizona for hiding more than $8,000 million in assets in foreign bank accounts that were kept a secret.

The prominent Phoenix businessmen, Stephen M. Kerr & Michael Quiel, solicited the services of a former San Diego attorney in committing this crime.

The attorney, Christopher M. Rusch, assisted the two businessmen to set up secret foreign bank accounts Switzerland. The Swiss accounts were set up in the name of nominee entities concealing the identity of Kerr and Quiel as the owners of the bank accounts. They then went ahead and deposited millions in these secret foreign bank accounts from sale of stock they had concealed their ownership in acquiring. All this while, Rusch acted as a signatory authority to these secret accounts. He carried out all the transactions on these accounts on behalf of Kerr and Quiel.

The Role of the Attorney

Rusch, focused on criminal and civil tax defense, creating and maintaining offshore accounts among other things. He was a master in setting up these offshore accounts and was not left out in using them too. He also maintained secret foreign bank accounts in Switzerland and Panama. He went against the statement “preach water and drink wine.” He actually preached the water and drank it, or how else can you convince clients to hide money in secret foreign bank accounts.  At one point, he helped Kerr to purchase a golf course in Colorado from his secret accounts. He actually did this using his nominee Panamanian entity. As if that was not enough, he helped Kerr and Queil to use the hidden money in the secret foreign bank accounts at their comfort back in the U.S. by transferring funds to them through his client trust account.


You cannot hide from the law for so long.  Rusch was sure they will never be found or may be the deal he got from this two business men was too sweet to be ignored.  Either way, he was at the center of breaking the law by aiding money laundering and in the promoting tax evasion. IRS and the government proved too smart to be outsmarted when they caught up with the three.

 Kerr and Queil were each convicted of two counts of filing false individual tax returns for 2007 and 2008. In addition, Kerr was charged with failing to file FBARs (Report of Foreign Bank and Financial Accounts) for 2007 and 2008.  Rusch, pleaded guilty to conspiracy to defraud the government and failing to file an FBAR.

In case you have found yourself in the above situation, contact us for help. It is getting hard to run from the law with the IRS intensifying its search on these secret foreign bank accounts.

OVDP changes to accommodate non-willful tax evasion

The OVDP (Offshore Voluntary Disclosure Program) may face more modifications as IRS continues to focus on international tax compliance. The IRS Commissioner John Koskinen hinted on the upcoming modifications to the OVDP on June 3rd, 2014 before the IRS Council. His remarks give a ray of hope to U.S citizens and residents who have offshore bank accounts that have gone unreported. This may be because the OVDP has been previously centered on criminal prosecution and hefty penalties under Bank Secrecy Act. The modifications would consider the U.S. Citizens and residents who have resided in other countries for so long that their failure to comply with their tax obligations has not been intentional. The IRS looks to accommodate these tax payers by easing the penalty on them. This is aimed at encouraging them to report their offshore accounts and comply with their tax obligations.

OVD program focus on combating tax evasion

OVDP (Offshore Voluntary Disclosure Program) was put in place to curb global tax evasion. It was to provide an opportunity to U.S. Citizens and permanent residents living overseas or those with offshore accounts to comply with their tax obligations voluntarily. This would involve disclosing offshore accounts and paying a monetary penalty thus avoiding criminal prosecution. The program has been successfully and as such seen various modifications since its inception. Despite this, there are still many tax payers who have not tapped into the OVDP program. They may have been willing to comply with their tax obligations may be if the penalties were minimal and reduced chances of criminal prosecution. For more on help with OVDP program, click here.

IRS modification to include willful tax payers in OVDP

IRS is determined to ensure maximum cooperation of its taxpayers abroad through yet another possible modification of OVDP. The OVDP program has without a doubt targeted all taxpayers with offshore bank accounts without considering if the taxpayers were willful or non-willful tax evaders. In his remarks, the IRS Commissioner John Koskinen notes that they are considering whether their voluntary programs have been too focused on those willfully evading their tax obligations and not being accommodating enough to others who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-willful variety. According to the IRS commissioner, some of the U.S. citizens have resided abroad for many years, perhaps even the vast majority of their lives. This is the driving factor behind the forthcoming foreseen possible modifications by the IRS to the OVDP.

The IRS, through its Commissioner, hinted on the possibility of giving these tax payers, whose non-compliance does not constitute willful tax evasion, the opportunity to come into compliance without having to face the type of penalties relevant for those who willfully hid their investments overseas. These tax payers might not have had the opportunity of coming into compliance that doesn’t involve the threat of substantial penalties.

IRS Expectations of U.S. Citizens and Resident Aliens Abroad

IRS  (Internal Revenue Service) in one of its news releases has reminded U.S. citizens and resident aliens abroad of the deadline on their tax obligations. According to the IRS, U.S Citizens and permanent residents who lived or worked abroad in 2013 in full or in part may have a U.S. tax liability and a filing requirement in 2014. The filing deadline is Monday, June 16, 2014, for U.S. citizens and resident aliens living overseas including those serving in the military abroad.

IRS has provided a filing deadline of June 16 to U.S. Citizens and alien residents. To cater for tax payers residing overseas who cannot meet this deadline, IRS has provided an automatic extension to Oct. 15, 2014 to the taxpayers. However, it is important to note that the extension by the IRS is on time to file and not time to pay. An interest rate interest rate of 3% p.a. is compounded daily applies to any payment made after April 15, 2014. In some cases, a late payment penalty, usually 0.5 percent per month applies to payments made after June 16, 2014.

Federal Law takes on IRS tax obligationa abroad

U.S. citizens and resident aliens living abroad are required by Federal law to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts on their federal income tax return. The IRS requires the affected taxpayers to fill out and attach Schedule B to their tax return. Certain taxpayers may also have to fill out and attach to their tax return Form 8938 (statement showing their financial assets abroad). U.S. Citizens and resident aliens with foreign accounts whose aggregate value exceeded $10,000 at any time during 2013 should these accounts. IRS requires tem to file Form 114 electronically with the Treasury Department. This is known as Reporting of Foreign Bank and Financial Accounts (FBAR). For more information on how to file the FBAR, click here.

Tax Evasion under QI agreements

The IRS U.S. Court building in Washington DC, a courthouse where cases on the Trust Fund Recover Penalty (TFRP) are held

On Feb. 28 2014, Thomas Sawyer, senior counsel on international tax matters with the DOJ’s Tax Division, clarified that banks who have helped clients hide assets from the US government aren’t immune from penalty simply because they have complied with a qualified intermediary (“QI”) agreement.

Mistaken Beliefs

Sawyer addressed the misconception of some banks that may have decided not to come forward under the mistaken belief that their QI agreements will protect them from enforcement. “If you’re hearing that advice, you should be put on notice that that’s wrong,” Sawyer said. Another misconception is that all banks have to do is pay a fine and they can simply move forward, he said.

An official from the IRS also said that the IRS has attaches in multiple countries to assist with investigations, and is looking at whether taxpayers who renounce their citizenship may be doing so for tax evasion purposes.  Since the enactment of the Foreign Account Tax Compliance Act (“FATCA”), the government has seen an increase in these renunciations. It is very clear that the U.S. Government is committed to combating tax evasion. Foreign Financial Institutions holding U.S. Citizens bank accounts have to either comply with IRS under FATCA or face penalties or to the worst case, close the bank accounts.

Sooner or later, the government will catch up with non-compliant banks and non-compliant U.S. Citizens in foreign countries. There is no option to tax evasion.

Don’t pack your bags just yet; you may not be going anywhere.

Tax evasion is a crime, it is better to get the help of a qualified tax attorney to help you file your FBAR returnsThe Senate  bill 1813 may just be the reason why you as a tax payer that owes the IRS taxes might just not be in a hurry to pack up your bags. In case you are planning on going anywhere, don’t pack your bags just yet; you may not be going anywhere. If this bill goes through, you might want to consider your tax debt first.

If your tax debt amounts to $ 50,000 and above, you may as well say bye to your traveling rights.

This is because your passport may be revoked soon. As a tax payer, you may want to consider the Senate bill 1813  introduced by Senator Barbara Boxer (D-Los Angeles) in November and passed by Senate on a 74 – 22 vote on March 14th  2012. The Highway Bill, also known as MAP-21 (Moving Ahead for Progress in the 21st Century) is to “reauthorize Federal-aid highway and highway safety construction programs and for other purposes.”

Your concern as a US citizen should be in the “Other purposes” section of the bill. Part of this is an amendment written by Senate Majority Leader Harry Reid, seeking to prevent any American citizen from leaving the country based upon a determination by the Internal Revenue Service (IRS) that you owe the government back taxes. The amendment, under Section 40304 of the legislation provides for “Revocation or denial of passport in case of certain unpaid taxes.” This would authorize the State Department to revoke passports for anyone the IRS certifies as having “a delinquent tax debt in an amount in excess of $50,000. The responsibility to prove that you owe taxes is solely vested in IRS and not any court. All the IRS need to do is to prove this without following any due process. IRS can move to suspend or revoke your passport on pure suspicion of tax delinquency before you even have a trial. Nothing will stop an IRS agent from flagging you with a lien to stop travel, even if the lien turns out to be false. It is important to note that the bill does not allow for exceptions in the following cases; emergency, humanitarian situations, limited return travel to the U.S., tax debt is being repaid in a timely manner and in situations where collection efforts have been suspended.

This bill is a step away from becoming law.

There is a high possibility that this bill will become law despite the stiffer opposition it is expected to face from Republicans in the House of Representatives. The provision for passport provocation is not so conspicuous; it is sandwiched deep within the very important transportation bill. The importance of saving the Highway Trust Fund from becoming bankrupt seems to be a priority overshadowing your need to travel freely. The need for the government to raise more finances in light of the shrinking economy may be the driving force to this provision. According to Lesniewski, passport provision has a good chance of becoming law for one reason; money. This provision is expected to raise almost $750 million in the 10-year budget window period. According to Senator Barbara, thousands of businesses are at stake, and nearly three million jobs at stake. She notes that, “there are many people on both sides of the aisle in the Senate who want to get our bill … passed into law, and I am going to do everything I can to keep the pressure on the Republican House to do just that.”

What does this mean to a U.S citizen with a delinquent tax debt in the excess of $50,000?

It means that if the house passes the bill, which has already been passed by Senate, then the IRS will have the power to revoke your passports. Constitutional Attorney Angel Reyes notes that this provision takes away your right to enter or exit the country based upon a non-judicial IRS determination that you owe taxes. Many businesses will be affected and so is the economy.

To be able to survive this, those with delinquent tax debts should make an effort to clear their debts with the IRS to avoid falling prey to this part of the bill; that is if it becomes law. Those with foreign bank accounts should report them and pay their taxes promptly to avoid this trap.

By Anthony N. Verni