Whether you were aware of it or not, since the 1970s, U.S. law has required the disclosure of foreign financial accounts by U.S. taxpayers under certain circumstances. A U.S. taxpayer is not only a U.S. citizen but also a Green-Card holder and a person who is deemed to be a taxpayer in any year in which he or she has met the substantial presence test (i.e., physically present for a certain number of days in the U.S. in a given year). Furthermore, residency in the U.S. is not required in order to be subject to the rules – citizens and green-card holders living outside of the U.S. are also subject to the disclosure requirements.


Failure to meet the disclosure requirements may subject a non-compliant taxpayer to sever civil penalties and in willful or fraudulent cases, may even mean criminal prosecution.


Over the past decade, the Internal Revenue Service has presented various voluntary disclosure opportunities where taxpayers may voluntarily take measures to become compliant and face reduced penalties (under some circumstances even elimination of the penalties) and avoid criminal prosecution. These programs are briefly outlined below. While significant resources can be found on the IRS website and websites like this one, it is imperative that before any action is taken, a qualified professional is consulted. Each case is unique in its facts and circumstances and a full legal analysis must be undertaken before determining the appropriate path to compliance and throughout the submission process.


It is important to note that in order to qualify for compliance under the various disclosure programs, a taxpayer must submit to the program before he or she becomes subject to an audit or examination. As such, once a taxpayer discovers that he or she was not in compliance, or if a taxpayer has been procrastinating, it is imperative that they recognize this “race” against the IRS and proceed to address the matter immediately – before it is too late.


At Dorot & Bensimon PL, we have guided hundreds of clients through the various processes to finality and adequate resolution. When choosing an attorney to represent you in this matter, nothing is more valuable than experience and we are here to help.



Who Must File an FBAR

United States persons are required to file an FBAR if:

  1. the United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
  2. the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

United States person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.


Exceptions to the Reporting Requirement

Exceptions to the FBAR reporting requirements can be found in the FBAR instructions published by the IRS. There are filing exceptions for the following United States persons or foreign financial accounts:

  • Certain foreign financial accounts jointly owned by spouses
  • United States persons included in a consolidated FBAR
  • Correspondent/Nostro accounts
  • Foreign financial accounts owned by a governmental entity
  • Foreign financial accounts owned by an international financial institution
  • Owners and beneficiaries of U.S. IRAs
  • Participants in and beneficiaries of tax-qualified retirement plans
  • Certain individuals with signature authority over, but no financial interest in, a foreign financial account
  • Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust)
  • Foreign financial accounts maintained on a United States military banking facility.

Review the FBAR instructions for more information on the reporting requirement and on the exceptions to the reporting requirement.


Reporting and Filing Information

A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.


The FBAR is a calendar year report and must be filed on or before April 15 of the year following the calendar year being reported. Effective July 1, 2013, the FBAR must be filed electronically through FinCEN’s BSA E-Filing System.


The FBAR is not filed with a federal tax return. When the IRS grants a filing extension for a taxpayer’s income tax return, it does not extend the time to file an FBAR. Prior to the passing of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, there was no provision for requesting an extension of time to file an FBAR. The Act mandates a maximum six-month extension of the filing deadline. To implement the statute with minimal burden to the public, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required.


Filers who submit FBARs jointly with spouses or who wish to have a third-party preparer file their FBARs on their behalf can use FinCEN Report 114a, Record of Authorization to Electronically File FBARs. FinCEN Report 114a is not submitted when filing an FBAR but, instead, is kept in FBAR records maintained by the filer and the account owner, and must be made available to FinCEN or IRS upon request.


Those required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to civil monetary penalties. For penalties that are assessed after August 1, 2016, whose associated violations occurred after November 2,2015, the IRS may assess an inflation-adjusted civil penalty not to exceed $12,459 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the inflation-adjusted penalty may be the greater of $124,588 or 50 percent of the balance in the account at the time of the violation, for each violation. For guidance on circumstances, including natural disasters, that prevent timely filing of an FBAR.


Note regarding civil penalty assessment prior to August 1, 2016: For those violations occurring on or before November 2, 2015, the IRS may assess a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation.


Offshore Voluntary Disclosure Program

On January 9, 2012, the IRS reopened its Offshore Voluntary Disclosure Program following continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program offers people with unreported taxable income from offshore financial accounts or other foreign assets an opportunity to fulfill their tax and information reporting obligations, including the FBAR. Although the program does not have a closing date, the IRS may end the program at any time.


On March 13, 2018, the Internal Revenue Service announced that it will end the Offshore Voluntary Disclosure Program on September 28, 2018. After this date, the options for filing under this program will no longer be available and taxpayers will need to either use one of the Streamlined Programs or find other means through which to comply.


Streamlined Filing Compliance Procedures

On September 1, 2012, the IRS implemented new streamlined filing compliance procedures that were available only to non-resident U.S. taxpayers who failed to file required U.S. income tax returns. Taxpayer submissions were subject to different degrees of review based on the amount of tax due and the taxpayer’s response to a risk questionnaire.


On June 18, 2014, the IRS announced the expansion of these procedures. The expanded procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, certain U.S. taxpayers residing in the United States. For eligible U.S. taxpayers residing outside the United States, all penalties will be waived. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to five percent of the foreign financial assets that gave rise to the tax compliance issue.


Delinquent FBAR Submission Procedures

Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs according to the FBAR instructions and include a statement explaining why the filing is late. All FBARs are required to be filed electronically through FinCEN’s BSA E-Filing System. Select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the ‘Other’ option.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.


U.S. Taxpayers Holding Foreign Financial Assets May Also Need to File Form 8938

Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. Those foreign financial assets could include foreign accounts reported on an FBAR. The Form 8938 filing requirement is in addition to the FBAR filing requirement.

How to avoid the federal estate tax when collecting life insurance proceeds

Date: July 19, 2017

By: Bill Bischoff

How to avoid the federal estate tax when collecting life insurance proceeds

Beneficiaries generally receive death benefits free of federal income tax, but what about the federal estate tax?

Having enough life and disability insurance should be a key element of your personal financial game plan. With some advance planning, you can collect life and disability insurance proceeds free of any federal taxes. Here’s how.

Life insurance

The main reason that most people have life insurance is to replace income that would be lost if they die prematurely. In general, a policy beneficiary can receive life insurance death benefit payments free of any federal income tax (and usually free of any state income tax too).

That’s great, but what about the federal estate tax? Under the current rules, when you are considered to own a policy on your own life, the death benefit is included in your taxable estate — unless the money goes to your surviving spouse and he or she is a U.S. citizen. When death benefits go directly or indirectly to a non-spouse beneficiary, such as a child or sibling, without passing through your estate, the money is still included in your taxable estate.

If the value of your estate — including any included life insurance death benefits that go to someone other than your surviving spouse — exceeds the federal estate tax exemption of: (1) $5.49 million if you’re unmarried or (2) a combined $10.98 million for you and your spouse if you’re married, your heirs will stand in line behind the IRS (and possibly the state death tax collector too). For unmarried folks, having lots of life insurance coverage (often through work) is the most common cause of exposure to the federal estate tax or state death taxes. The larger $10.98 million federal estate tax exemption for married couples makes it less likely that life insurance coverage will trigger a federal estate tax bill. But it can still happen.

Here’s the rub. You are considered to own a life insurance policy if you possess so-called incidents of ownership. You have them if you retain the power to change policy beneficiaries, change coverage amounts, cancel the policy, and so forth. As stated earlier, if you are considered to own the policy, the death benefit will be included in your taxable estate for federal estate tax purposes unless it goes to your surviving spouse who is a U.S. citizen.

If having life insurance death benefits included in your taxable estate would cause an estate tax hit, the tax planning solution is to set up an irrevocable life insurance trust to own the policy. The trust then pays the premiums, and the death benefits go to whomever you name as the trust’s beneficiaries. Your estate is out of the picture. With this arrangement, there’s no federal estate tax on the death benefit, and there’s no federal income tax either.

Naturally, there are a few complexities with this strategy. If you transfer an existing policy to the life insurance trust and die within three years, the death benefits are included in your taxable estate. To avoid this problem, the trust should purchase a new policy on your life. If that’s not possible (say because your health isn’t so great), you may have nothing to lose by transferring an existing policy and trying to outlive the three-year rule. But check with your estate planning pro first, because transferring existing policies with cash values in excess of $14,000 could trigger adverse gift tax consequences.

Finally, know this: while setting up an irrevocable life insurance trust can be a great idea, it isn’t a good DIY project. Hire an experienced estate planning pro to get the job done right. Finally, if you’re counting on President Trump’s proposed repeal of the federal estate tax to eliminate this concern, please don’t. Who knows when or if that will actually happen? Not me.

Disability insurance

In addition to having adequate life insurance coverage, you should probably also have long-term disability (LTD) coverage to protect against lost earnings during any lengthy period of disability. But most LTD policies limit benefits to only 60% or 70% of earnings before income taxes. That’s generally OK as long as you don’t have to pay income taxes. But if you do, you’re probably going to lose 30% to 40% (or more) to the IRS and your friendly state tax collector. That could cause your coverage to be insufficient (because 70% of 70% is only 49% of your pretax earnings; 60% of 60% is only 36%. You get the idea. Having to pay tax on LTD benefits can really hurt.

Now for the good news. LTD benefits are generally federal-income-tax-free when you pay the premiums yourself (as opposed to your employer paying them). On the other hand, if your employer pays the premiums as a tax-free fringe, any LTD benefits will be fully taxable to you. The same is true if you aside part of your salary to pay the premiums with before-tax dollars under your employer’s cafeteria benefit plan. Here are two strategies to deal with this tax dilemma.

  • If LTD benefits would be taxable because your employer is paying the premiums, the preferred solution is to arrange for the premiums to be paid with after-tax dollars via withholding from your paychecks. That way, the premiums are treated as part of your taxable salary, which will cause a slight increase in your income tax bill. However any LTD benefits will be tax-free, which is the bigger consideration here.
  • The other alternative is to buy a supplemental LTD policy with your own money. The idea is to buy enough extra coverage to cover the income tax hit on the benefits that you would receive under the company-provided coverage. All benefits received under your personal LTD policy will be tax-free because you paid the premiums with your own money.

The last word

Having adequate life and disability insurance coverage is critical, and taxes are a major concern. If you play your cards right, you and your heirs will be better off, and the IRS will be the loser. If you need to make changes to avoid tax problems, please do it now before some unanticipated event happens. After all, that’s what life and disability insurance is for: to protect you from life’s unanticipated twists and turns.

Copyright ©2017 MarketWatch, Inc. All rights reserved.

Why You Should Get Around to Drawing Up a Will

Date: February 8, 2017

By: Ann Carrns

Why You Should Get Around to Drawing Up a Will

No one likes to think about dying — and that is probably one reason most Americans lack wills.

Fewer than half of American adults (42 percent) have a will, according to a survey published this week on, a website that offers resources for older Americans and their caregivers.

The most common excuse given for not having a will (or an alternative legal tool called a living trust) was, “I just haven’t gotten around to it,” cited by nearly half of survey participants who lacked one.

“Most people run from, and don’t want to think about, their own death,” said Arthur Kovacs, a clinical psychologist in Santa Monica, Calif.

People are more likely, though, to have important estate planning documents as they age. Just one in five millennials — adults 18 to 36 — has a will, the survey found. But 81 percent of people 72 and older have one.

The survey, by Princeton Survey Research Associates International, questioned more than 1,000 adults by telephone in January. The margin of sampling error was plus or minus four percentage points. ( makes money from advertising and from referrals to senior care facilities.)

Having a will is important to ensure that your money and belongings are distributed according to your wishes after you die, said Sally Hurme, an elder-law attorney affiliated with AARP. “It determines how anything you own is going to be distributed to people you want to receive it, after your death,” she said.

If you die without a will, your estate will be settled in accordance with state law. Details vary by state, but assets typically are distributed using a hierarchy of survivors. Assets go to first to a spouse, then to children, then your siblings, and so on.

People often fail to understand, however, that certain accounts take precedence over a will, Ms. Hurme said. If you jointly own a home or a bank account, for instance, the house, and the funds in the account, will go to the joint holder — even if your will directs otherwise. Similarly, retirement accounts and life insurance policies are distributed to the beneficiaries you designate, so it is important to keep them up-to-date.

Health care powers of attorney, which let a trusted person make medical decisions for you when you are unable, are more common than wills, the survey found. More than half of adults have granted someone legal authority to make treatment decisions.

Older people are more likely to have a health care power of attorney, sometimes called a health care proxy, the survey found. But Katie Roper, vice president of, advises that everyone 18 or older — not just elderly people — should have one. If you have a children 18 or older away at college, she said, making sure they have such documents can help make sure you are able to discuss their treatment, should an emergency arise.

Mr. Roper said she was especially surprised at the survey’s finding that just 36 percent of adults with minor children have a will. An important function of a will, she said, is for parents to name a guardian to care for their children, in the event of their death.

Here are some questions and answers about wills:

Must I have a lawyer draw up my will?

Not necessarily. Creating a will with a do-it-yourself software program may be acceptable in some cases, particularly if you are a single person with a modest bank account or half of a young couple with no children. “It’s perhaps better to have one done by a program than not at all,” said Gerard G. Brew, a lawyer specializing in trust and estate matters with McCarter & English in Newark.

But if you have significant financial assets or a complex family situation, like a blended family or a child with special needs — it is best to seek expert advice. Any cost savings from skipping legal advice upfront, Mr. Brew said, will quickly evaporate if an estate matter is contested in court. “I urge caution,” he said.

The price of a will varies by location and by the complexity of your situation. Nationally, a couple most likely will pay an average of $1,200 to $5,000 for an estate planning package that includes wills and related documents, Mr. Brew said.

It doesn’t hurt to get prices from different firms, he said — just be sure the quote includes the same services. To help rein in costs, Mr. Brew advised, prepare for the first meeting with your lawyer by creating detailed lists of assets and accounts, so your time is spent as efficiently as possible.

What do-it-yourself options are available?

Online options include LegalZoom, which offers wills for as low as $69. Quicken Willmaker, created by Nolo, can be downloaded or purchased as a disc. Prices range from about $31 to $55, depending on the version.

The New York Times tested several D.I.Y. programs several years ago, and concluded that legal help was warranted for all but the simplest estates. Consumer Reports reached a similar conclusion.

Ms. Roper with suggested that if you don’t have a will, you could create one yourself to get started, and then have it reviewed by a lawyer to make sure it covers all the important bases.

Once I have a will drafted, where should I keep it?

If a professional prepared your will, Mr. Brew recommends keeping the original document at the lawyer’s office.

If you created the will yourself, opinions differ as to the best option. Ms. Hurme advises against keeping your will in a bank safe deposit box, as it may be difficult for others to gain access to it after you die. She suggests keeping it at home — perhaps in a fireproof safe.

Mr. Brew, however, prefers the safe deposit box route. Most states have a procedure to allow a named executor to retrieve a will, he said. If you keep the original in your possession and it cannot be found upon your death, he warned, courts may presume that you revoked it.

Utah Jazz Owners Demonstrate Power of Dynasty Trusts

Date: February 6, 2017

By: Jeramie J. Fortenberry

Utah Jazz Owners Demonstrate Power of Dynasty Trusts

Utah Jazz owner Gail Miller recently made basketball news by announcing that she and her family had transferred the NBA team into a dynasty trust.

Utah Jazz Owner, Gail Miller, recently made basketball news by announcing that she and her family had transferred the NBA team and the Vivint Smart Home Arena into a dynasty trust. Gail Miller and her late husband, Larry Miller, bought the franchise in 1985 for $26 million. The transfer into the dynasty trust was part of a larger family estate plan. According to Miller, the trust will “last forever, as long as we have people who are willing and able to take care of it.”Although the details of the trust are private, the Miller family and their advisors have made several public statements about the transfer. These statements provide hints about the trust design and illustrate the flexibility and benefits offered by dynasty trust planning.

Overview of Dynasty Trusts

A dynasty trust (also known as a legacy trust) is a long-term trust designed to hold family assets for multiple generations. Dynasty trusts differ from other types of trusts, which are often designed to terminate on the death of the trust creator or his or her children. Dynasty trusts are designed to hold assets for as long as possible under state law. Although beneficiaries may have limited access to trust income or principal during their lifetimes, they do not receive the property outright. It continues to be held in trust for the next generation. Most dynasty trusts are irrevocable and fully or partially exempt from generation-skipping transfer (GST) taxes. In 2017, a married couple can allocate a total of $10.98 million GST exemption to a dynasty trust. The initial transfer is often seed money. Dynasty trusts usually make few distributions in the first few decades, allowing the initial transfer to appreciate. If the initial $10.98 million of trust assets appreciate at 8 percent per year, the trust will be worth more than $20 million in ten years. All appreciation remains exempt from estate or gift tax as long as the trust exists. This helps ensure that future generations do not pay taxes on future transfers until the trust terminates.

Dynasty trusts also have asset protection benefits. Beneficiaries of a dynasty trust usually have no right to distributions. Instead, dynasty trusts are typically structured as discretionary trusts with spendthrift clauses that prevent trust assets from being used to satisfy debts or other obligations of the beneficiary. This protection extends to the marital estate and prevents trust assets from being subject to equitable division if a beneficiary is involved in a divorce.

The Miller Family’s Trust for the Utah Jazz

One of the main benefits of any non-testamentary trust is privacy. Because the legacy trust used by the Miller family is not public, we do not know exactly how the trust is structured. But we can glean some information from recent statements that the Miller family and related parties have made in the past week.

One of the primary purposes of dynasty trusts is to prevent wealth dissipation by providing consolidation of assets and continuity of management over the long term. This appears to have been a significant factor in the Miller family’s decision to establish the trust. According to the Salt Lake Tribune:

“[Gail] Miller will serve as the trustee, and will eventually cede control of the franchise to a six-person board of managers, comprised of members of her family … The board of managers will need either a majority or a super majority, depending on the nature of the business, to make future decisions for the franchise, attorney and former Utah Jazz president Dennis Haslam said.”

If this is correct, Gail Miller will serve as the initial trustee. This is somewhat unusual for a dynasty trust, which is typically irrevocable and designed to remove assets from the trust creator’s estate for transfer tax purposes. In most cases, an independent third-party trustee is named to manage the trust assets. This ensures that the trust creator retains no rights over the assets that could cause the trust to be included in the trust creator’s estate for tax purposes. Here, we do not know how the trust fits in the Miller family’s larger estate plan. It is possible that, even though Ms. Miller serves as the initial trustee, the trust was designed so that she did not keep any retained interests that could trigger inclusion in her estate.

Control of the trust will eventually pass to a board of managers that will make decisions by majority or supermajority vote. These managers will be comprised of family members, but it is unclear how the role of manager relates to the trust. These managers could be co-trustees of the trust, an advisory committee that advises the trustee about various decisions, or a group of multiple trust protectors with limited rights over the trust. Although this group management structure is somewhat unique, it illustrates the flexibility available in the trust design process.

The Trust Provides No Immediate Economic Benefit to the Miller Family

Ms. Miller has stated that the trust will not provide any “material benefit to the family from the Jazz.” It isn’t clear whether this statement is true for the long term. Each trust must have a beneficiary, and in this case it is probably safe to assume that the Miller family are the named beneficiaries if the trust. It is possible that Ms. Miller’s statement relates only to the short term and that the Miller family will ultimately benefit from the trust in the future.

Dennis Haslam is a former President of the Jazz and helped to get the NBA’s approval to transfer the franchise into the trust. He has been quoted as saying:

“The profit stays within the trust. The profit that stays within the trust will be used as retained earnings, for expansion, for player salaries, or other operations. There could be a time period where the Jazz aren’t profitable, so we’ll stockpile cash. This trust will be well-supported financially, and will be able to survive into the future for generations and generations.”

Reading between the lines, it is possible that the lack of benefit to the Miller family is a short-term plan designed to allow the trust to accumulate reserves to ensure both the future of the team and the long-term viability of the trust. Once the trust is fully self-sufficient, it is possible that excess profits will be distributed to the Miller family. It is also possible that the trust has a charitable component. For example, the trust could be structured as a charitable remainder trust that names a charity to receive the trust assets when the trust terminates.

The Trust is Long-Term

As a dynasty trust, the trust will be around for a while. As quoted above, Haslam has stated that the trust will “be able to survive into the future for generations and generations” and Ms. Miller has stated that the trust would “last forever, as long as we have people who are willing and able to take care of it.” Greg Miller has also stated that the trust was “as close as possible to there being perpetual ownership of a professional sports team.”

For states with a rule against perpetuities, the time that property can remain in a trust is limited. It is possible that the Miller family formed the trust under the laws of a different jurisdiction without a rule against perpetuities, which could allow the assets to remain in trust indefinitely. But even if the trust was formed under Utah law, the assets could theoretically remain in trust for a very long time. Utah has adopted the Uniform Statutory Rule Against Perpetuities and allows assets to remain in trust for as long as 1,000 years.


The dynasty trust used by the Miller family demonstrates how innovative thinking can be implemented in the trust design process. Some benefits of the trust—GST tax savings, continuity of management, and asset protection—are available to all dynasty trusts, but other features are less common. Most dynasty trusts do not have a board-managed structure, provide no economic benefit to the family, and allow the trust creator to serve as trustee. The fact that these unusual features could be incorporated into the trust while still accomplishing the Miller family’s objectives demonstrates the flexibility and benefit provided by dynasty trust planning.

This article is courtesy of WealthCounsel, a community of over 4,000 trusts and estates attorneys with a common goal to practice excellence. To learn more, visit Jeramie J. Fortenberry, J.D., LL.M. is a member of WeathCounsel’s Legal Education Faculty.

New Aventura Address

The Aventura office of Dorot & Bensimon PL has moved to a new location.  The new address for the Aventura office is:

20295 NE 29th PL, Suite 201
Aventura, Florida 33180

Snitching On Your Friend’s Offshore Accounts Might Yield Only Stitches, Not Rewards

Date: April 13, 2016

By: Ajay Gupta,

Snitching On Your Friend’s Offshore Accounts Might Yield Only Stitches, Not Rewards

You may have a friend who you know is raking it in, earning large amounts of mostly cash income. But you also know he is not being completely honest in reporting it to the IRS. In fact, he siphons off a big chunk and hides it in an account in a tax haven jurisdiction with strict bank secrecy laws. Or you may know somebody who immigrated to the United States but retains extensive business operations in his native country. This person knows that as a green card holder or naturalized citizen, he is subject to U.S. taxes on his worldwide income, but figures there is no way the IRS can find out about his overseas dealings and bank accounts.

You, on the other hand, have always played by the rules. Not having the luxury of cash earnings that you can hide from the IRS and stash offshore or extraterritorial connections enabling the generation of foreign wealth in foreign lands, you will dutifully report all your income and pay all your taxes this year as you have done every year. But the unfairness of it all weighs on you. And then somebody points out that the IRS rewards whistleblowers. Indeed, in large recoveries, the law requires the Service to pay out at least 15 percent of collections attributable to a whistleblower’s information. Should you squeal on your friend’s secret offshore bank accounts in the hopes of a handsome reward from the IRS? A recent Tax Court decision suggests that you would do well to resist that temptation.

Rewarding tax snitches is nothing new. Since 1867, Congress has authorized the Treasury Secretary to make discretionary payments to those who help detect tax underpayments. But in 2006, Congress added a provision to the tax code mandating awards of between 15 and 30 percent of “collected proceeds” from an action or settlement based on information provided by a whistleblower in some cases. Among other requirements, “the tax, penalties, interest, additions to tax, and additional amounts in dispute” in such a case should have exceeded $2 million.

In an anonymous whistleblower action decided by the Tax Court in March, Judge Albert G. Lauber held that a penalty for failing to file a foreign bank account report (FBAR) doesn’t count toward that $2 million threshold. FBAR penalties can quickly add up. A non-willful failure to file an FBAR is subject to a penalty of as high as $10,000 a year. A willful failure can attract a maximum annual penalty of $100,000 or half the value of the foreign bank account, whichever is greater. Even though the FBAR regime was set up outside the IRS, authority to administer it was delegated to the Service in 2011.

While Lauber’s holding to exclude FBAR penalties from the $2 million disputed amounts threshold rests on sound statutory construction, it does open up avenues for the government to structure settlements with a view to depriving whistleblowers of their legitimate due. For example, by demanding and accepting a large FBAR penalty in exchange for a small or no tax-related penalty, the IRS could squirm out of the requirement of a mandatory award, leaving the whistleblower at the mercy of the Service’s discretion.

That is exactly where the whistleblower in the case before Lauber found himself. He had sought a mandatory award based on amounts the government had collected from a former client of Swiss banker Renzo Gadola. In December 2010 Gadola had pleaded guilty to a criminal conspiracy to defraud the United States, admitting he had serviced hundreds of secret Swiss accounts, first as a private banker at Zurich-based UBS from 1995 to 2008 and later as an independent investment adviser. One of Gadola’s former clients, in turn, pleaded guilty in August 2011, agreeing to pay an FBAR penalty of $6.8 million, as well as a small amount of restitution, reflecting unpaid taxes on income derived from his undisclosed Swiss bank accounts. The whistleblower claimed a mandatory award based on the aggregate amounts, including the FBAR penalty, paid by Gadola’s former client. The government argued that the plain text of the statute excluded the FBAR penalty. Without it, the amounts in dispute were at most $50,000, well short of the $2 million threshold, rendering the whistleblower ineligible for a mandatory award. Lauber sustained the government’s position.

In amending the whistleblower statute and establishing a mandatory award in 2006, Congress evidently sought to provide greater incentives for whistleblowers by promising them more certain payments. But the statutory text does not seem to have anticipated FBAR penalties. That, combined with the subsequent delegation of administering the FBAR regime to the IRS, means that whistleblower awards largely continue to remain acts of administrative grace.

Ratting out your friend’s secret foreign bank accounts for an award that lies within the IRS’s discretion may well mean the end of a beautiful friendship with little to show for it by way of monetary gain. Until Congress fixes the whistleblower statute to explicitly include FBAR penalties, pretending that you don’t begrudge your friend his undeclared hoard in foreign bank accounts may be the best policy.

Tax Attorneys See Reason for Clients to Worry About Panama Papers Inquiries

Date: April 19, 2016

By: Monika Gonzalez Mesa, Daily Business Review

Tax Attorneys See Reason for Clients to Worry About Panama Papers Inquiries

Some tax attorneys are getting more calls from clients concerned about offshore accounts, and the attorneys expect more scrutiny to come.

Malta’s Leaders Face Scrutiny as Panama Leak Contagion Broadens

Date: April 18, 2016

By: Karl Stagno Navarra

Malta’s Leaders Face Scrutiny as Panama Leak Contagion Broadens

Maltese Prime Minister Joseph Muscat’s government survived a no-confidence vote on Monday following revelations from a leaked trove of legal documents that the premier’s chief of staff and energy minister had offshore trust companies.

Muscat used his majority in parliament to overturn the motion even as the tax disclosures have forced the resignation of at least one European leader and given fodder to populist groups angry at a growing worldwide wealth disparity.

The leak of more than 11 million documents earlier this month exposed billions of dollars in assets hidden in tax havens around the world, sparking a global furor. Spain’s acting industry minister resigned after documents leaked from the Panamanian law firm Mossack Fonseca showed he had links to an offshore account, and U.K. Prime Minister David Cameron was forced to provide more transparency over his wealth after disclosures his late father had an offshore company with the law firm.

“I am satisfied at today’s result,” Muscat told reporters. “My government humbly accepts the confidence shown by the vote.”

The facts still need to be verified over the two people implicated in the Panama Papers before any further decisions are taken, he said.

The Group of 20 economies said in a statement on Friday that they will consider “defensive measures” against financial centers and jurisdictions that don’t commit to an international standard requiring the exchange of information about account holders.

4 Hidden Costs of Selling Your Home

Date: April 17, 2016

By: Maurie Backman

4 Hidden Costs of Selling Your Home

Don’t let these catch you off guard.

Whether you’re looking to relocate, downsize, or upgrade to a larger space, selling a home can be a stressful and surprisingly expensive process. You’re probably aware that if you use a realtor, you’ll pay a 5% to 6% commission on your home’s sale price. But there are some other costs that might creep up on you. Let’s go over four of them.

  1. Real estate transfer taxes
    You’d think that paying for and owning a home would give you the right to sell it with no strings attached, but alas, that’s not the case. When you sell a home, your state, county, or municipality may want a piece of the action — and what better way to generate extra revenue than to impose a real estate transfer tax? While the amount you pay will vary based on where you live, tax rates typically range from .01% of your home’s sale price (as in Colorado) to 4% (roughly what you’ll pay in Pittsburgh). In Florida, for example, you’ll pay about $2,100 in transfer taxes when you sell a $300,000 property.

On the bright side, it’s common for the buyer and seller to split this cost. Just make sure you know how much you’ll end up paying.

  1. Capital gains taxes
    Though it’s somewhat rare, depending on your circumstances, you may be subject to capital gains taxes if you sell your home for a significant profit. What helps most people avoid these taxes is the ability to exclude up to $250,000 in gains for a single filer and up to $500,000 in gains for those married filing jointly. There’s a catch, though: To claim the exclusion in its entirety, the property in question must have been your primary home, and you must have lived in it for at least two out of the five years leading up to the sale date. Also, if you claimed another home sale exclusion in the previous two years, you generally won’t be eligible for another one. On the other hand, you can deduct selling costs, such as realtor fees, to lower your capital gains for tax purposes.
  2. Home staging costs
    Though it’s not a must, home staging can help you attract buyers and move your home off the market more quickly. The downside? Sprucing up your home costs money. Sellers these days spend $1,800 on average to stage a home, and while you may recoup some or all of that money by commanding a higher asking price, it’s a cost you should be prepared to absorb up front. Thankfully, you can save money on staging costs by doing some of the work yourself as opposed to hiring a professional stager. The Internet is loaded with tips on how to stage homes on a budget, from adding decorative curtains and rugs to applying fresh paint as needed.
  3. Certificate of occupancy
    In some localities, in order to sell a home, the seller must obtain a certificate of occupancy stating that the property in question is safe and suitable for residence. While the fee for the certificate itself might be as little as $50, some cities and towns have specific criteria that must be met before a home can receive one. Generally, a municipal representative performs an on-site inspection to see if a home complies with updated building codes. If yours doesn’t, you may need to make some last-minute adjustments or repairs to get your home up to code, and the more involved the work, the more you’re likely to pay. Updating your kitchen’s outlets, for example, could cost several hundred dollars if you need to get an electrician involved.

If you’re enlisting the help of a realtor to sell your home, ask yours to walk you through the potential costs you might encounter in the process. That way, you won’t be quite as horror-struck when those potential expenses begin to add up.

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IMF, World Bank, UN unite to fight tax evasion

Date: April 19, 2016


IMF, World Bank, UN unite to fight tax evasion

Washington (AFP) – Four of the world’s largest multilateral organizations joined hands Tuesday in the fight to help developing countries fight tax evasion.

The International Monetary Fund, World Bank, United Nations and the Organisation for Economic Co-operation and Development (OECD), announced a joint platform for collaboration on tax issues, a beginning step to design and implement international standards.

The announcement came on the heels of the so-called “Panama Papers”, a trove of documents leaked from a Panama law office that showed top international politicians among the owners of thousands of anonymous shell companies located in tax havens.

“This effort comes at a time of great momentum around international tax issues,” the four organizations said in a statement.

“Strengthening tax systems –- policy and administration –- has emerged as a key development priority.”

The first task for the initiative will be to deliver “toolkits” to developing countries to help them act against corporations using accounting tactics like profit shifting and transfer pricing between countries to lower their tax bills.

According to the United Nations, billions of dollars are denied to developing country government coffers each year due to what is often called euphemistically “aggressive tax planning” by multinational companies.

Recent cases in Europe demonstrate how major companies shift income and assets to their offices in countries with the lowest tax rates.

Developing countries “are the ones who lose out to the creativity and inventiveness of the multinationals,” IMF Managing Director Christine Lagarde said in a discussion of the issue on Sunday.

In 2013 the OECD, which groups the world’s leading economies, launched a program to beginning reining in tax avoidance and to force companies to be more transparent about their finances in each country in which they operate.

The new joint platform aims at bringing developing countries into the effort.

In defence of ‘tax havens’: offshore banking is not the same as dodgy dealing

Date: April 13, 2016

By: Nigel Green

In defence of ‘tax havens’: offshore banking is not the same as dodgy dealing

Offshore investors are not just the uber rich highlighted by the Panama Papers. Many are hardworking people looking for better returns and more flexibility

The leak of 11.5m confidential documents from the Panamanian firm Mossack Fonseca has brought the international financial services industry under global scrutiny as never before. The furore is hardly surprising. The Panama Papers suggest that the firm might have facilitated money laundering, sanctions busting and/or tax avoiding by its mega-wealthy clients, who include heads of state, senior politicians, business leaders and celebrities, on an unprecedented scale.

It all makes for compelling headlines and I’m sure there is more to come. This is probably the biggest scandal to hit the global financial services industry. However, the murky, hidden world that has been portrayed over the last two weeks is not the global financial services business that I recognise. It is simply not representative of the wider industry. Just because some individuals may have used offshore financial centres for illegal purposes does not mean that everyone does. Clearly.

Mossack Fonseca: inside the firm that helps the super-rich hide their money

As Panama Papers shine light on offshore world, Luke Harding takes a closer look at company exploiting tropical tax havens

 Read more

The overwhelming majority of the offshore sector provides products and services that are entirely compliant and legal and are used by law-abiding people. Many of the files that were leaked date back decades and the past few years has been an era of unprecedented disclosure and transparency. Indeed, the notion of a tax haven, in the traditional sense, is now somewhat outdated. We live in a world in which financial information is being automatically exchanged with tax authorities globally all the time. It’s nearly impossible to hide assets for long. Stashing cash on treasure islands and not expecting to be found out would be foolish in the extreme.

Why, therefore, do millions of people across the world use offshore financial hubs? My experience of dealing with expatriates and international investors suggests that one major reason they might hold money in an offshore account – which is simply an account in a jurisdiction different to the one in which the person resides – is convenience. These accounts offer centralised, safe, flexible and international access to funds no matter where an individual lives and no matter where they may move to in the future, at the same time as offering a wide array of saving options in many currencies. This is important as those who live outside their country of origin often lead fairly transient lives.

Those using offshore investment products are not, typically, out to break the law in any way, shape or form. Nor are the vast majority of them the uber-rich and powerful that they are often imagined to be. These investors are, largely, hard-working people who, quite sensibly, are simply looking at all the alternatives for better returns, more options and greater flexibility.

International financial hubs also offer tax neutrality. This means that they can protect companies that operate in multiple jurisdictions from double taxation, as they would only pay the taxes that are required in their home countries. Many global investors favour these centres as they can provide a flexibility of corporate structures, simple incorporations, the issuance of different share classes and a sound legal system.

A point that is all too often overlooked is that offshore centres offer legitimate financial refuge for those in countries where there is economic and political turmoil, such as extremely volatile currency and expropriation of assets. And some extremely high net worth individuals who live in countries where there is economic, political or social unrest do indeed value another characteristic offered by some such hubs: privacy.

There is a real danger of kidnap in some parts of South America – financial privacy is vital for safety

For example, there is a real danger of kidnap in some parts of South America for these individuals and their loved ones. Financial privacy is therefore needed to keep them safe. However, there is an important distinction to be made between financial privacy and financial secrecy. Exchanging information between government authorities for relevant tax matters is, generally, wholly legitimate. Sharing financial information with anyone else is not. Privacy can be crucial. Secrecy isn’t.

Most international financial centres are now well regulated and transparent, and the global financial services sector provides a much needed and in-demand service for individuals, businesses, organisations and charities all over the world. It is a sector that is set to grow exponentially as the world becomes increasingly globalised.

The recent leak of documents demonstrates that more can still be done to improve co-operation between some jurisdictions, but the whole offshore world should not be tarred with the Panama Papers brush.

Panama Papers reveal Hong Kong’s murky financial underbelly

Date: April 14, 2016


Panama Papers reveal Hong Kong’s murky financial underbelly

Jasmine Li was still a student when she opened her first offshore bank account through Mossack Fonseca Hong Kong, but the shady world she entered that day had been part of the city’s underbelly for decades.

The granddaughter of China’s then fourth-ranked politician was among dozens named in a vast cache of documents leaked from the Panama law firm that have given a glimpse into how the rich and powerful hide their money.

But the so-called Panama Papers, released by the International Consortium of Investigative Journalists this month, have also exposed the key role played by Hong Kong and Singapore in funnelling that wealth into tax havens.

Mossack Fonseca’s Hong Kong offices were their busiest in the world, the ICIJ analysis showed, setting up thousands of shell companies including some linked to China’s top political brass, the city’s richest man, Li Ka-shing, and movie star Jackie Chan.

Experts say the Asian financial hubs have already channelled billions into tax havens, and the Boston Consulting Group predicts they will be the world’s fastest-growing offshore centres over the next five years.

“Hong Kong is set up to make it easy for people to do business, and it is very easy to do business here,” said Douglas Clark, a barrister with one of Hong Kong’s largest chambers.

“But when it’s easy to do business then it’s easy to do any type of business, legal or illegal.”

Offshore companies are not necessarily illegal, but they operate on the fringes of what is allowed and their opaque structures make it easy to conceal ill-gotten or politically inconvenient wealth.

They have proved a boon for Hong Kong and Singapore, which are known not only for their financial expertise but also light-touch regulation, discretion and non-cooperation with foreign tax authorities.

Both are already on regulators’ radars — the EU briefly added Hong Kong to its tax blacklist last year — but experts say they are unlikely to do anything to jeopardise the lucrative offshore business.

– ‘Turning a blind eye’ –

Domiciling offshore has a long history in the region. In 1984, then trading house Jardine, Matheson & Co, one of the most powerful companies in Hong Kong’s colonial history, relocated to Bermuda citing concerns about the city’s handover to China.

“Hong Kong’s history as a financial centre that specialises in turning a blind eye to things that would be investigated elsewhere goes right back to the 1960s,” said financial commentator Tom Holland.

Today, Chinese investors use offshore companies legally in Hong Kong to bypass red tape, take advantage of tax breaks for foreign investors and circumvent strict capital controls.

Hong Kong University law professor Douglas Arner said it has become “perfectly normal” for companies to park money from overseas operations offshore, as the city does not tax profits made elsewhere.

But their widespread use has earned Hong Kong and Singapore reputations for murky dealings, and the Tax Justice Network ranked them among the least transparent places in the world in last year’s financial secrecy index.

In Singapore, seen as more rigorous in policing its financial sector, the TJN said a culture has evolved of enforcing the law domestically but tolerating the illicit money that flows in from crimes committed overseas.

“Singapore is not only a secrecy jurisdiction… but also a tax haven, providing numerous tax avoidance and evasion opportunities,” the group said in its profile of the city state.

– ‘They’ll find snakes’ –

Clark said criminals, drug dealers, email scammers and corrupt Chinese officials have turned to Hong Kong to try to hide their money offshore.

But even when used legally, offshore companies can make it harder to sniff out crime.

Local shareholder activist David Webb said three-quarters of companies listed in Hong Kong are incorporated in the Cayman Islands or Bermuda.

Webb also noted that stock exchange rules do not require listed companies to say who owns any British Virgin Islands companies they make acquisitions from, thereby fostering fraud and corruption.

“I don’t think there is any appetite in the stock exchange to look under that particular rock, because they’ll find snakes if they do,” he said. “They see tighter regulation as a problem.”

An exchange spokesman said all companies have to comply with the law and exchange rules, and those incorporated in China and Hong Kong count for more than half of the exchange’s market capitalisation.

Despite the controversy, few expect authorities in Hong Kong or Singapore to change their regulations surrounding offshore dealings any time soon given how lucrative the industry is.

And, because the cities’ own laws haven’t been broken, experts say even international efforts to stop tax cheats are unlikely to make any difference.

“If anything, this is going to make people even more careful when they set up offshore holdings,” said Clark.

“People will make sure investments are structured in such a way that if they are ever revealed, you won’t be in trouble.”

Hong Kong authorities said they were aware of the Panama Papers allegations. Singapore’s monetary authority said it was investigating and “will not hesitate to take firm action” against wrongdoers.

Is the end near for offshore tax havens?

Date: April 13, 2016

By: Mustapha Kamil

Is the end near for offshore tax havens?

Before last week, we perhaps knew Panama more because of the Panama Canal, a piece of engineering marvel that, since its opening in 1914, has provided ships sailing between the Atlantic and Pacific a much shorter and less treacherous route. Had there not been the canal, ships would have to sail all the way down and around Cape Horn or through the Straits of Magellan at the tip of South America, before either entering the Atlantic or Pacific Ocean. The Panama Canal’s specialty lies in its series of water locks cutting through tropical rainforest and the isthmus where Panama is. There are no such locks at its West Asian counterpart, the Suez Canal. The French first started building the Panama Canal in 1881, but the project was abandoned, among others, because of the high mortality rate involved in its construction. The Americans took over in 1904, and the canal was completed a decade later. In today’s merchant shipping terms, ships classified as of “Panamax” class are those that may pass through the locks and safely sail under the Bridge of the Americas in Balboa, just outside of Panama City. They are generally mid-sized cargo ships. Recently, a third series of locks was built to allow what is known as “New Panamax” class vessels, which are slightly larger than the Panamax class ships, to pass through. This also reduced congestion at the canal. However, large ships such as of the VLCC (very large crude carrier) and ULCC (ultra large crude carrier) class cannot pass through the canal and are classified simply as “Post Panamax”. There is, however, another activity Panama is known for, and related to the shipping industry, which later expanded into the reasons why the small state got into the limelight last week. Completion of the canal in 1914 subsequently attracted larger volumes of shipping and in 1919, Panama started to offer ship registry services. Its first customer was United States oil company Standard Oil, and the reason why the giant company chose to register its ships in Panama was none other than to escape high US taxes and stiffer regulations at home. Since then, Panama has been offering, in merchant shipping terms, an open registry service where ship owners from anywhere in the world may register their ships there, instead of in their home country. In return, Panama imposed very low or no tax, supposedly less stringent ship inspections and a veil of secrecy as to the real ownership of the vessels. There is another added attraction, especially for American passenger ships, in that when registered in Panama, they may serve alcohol on board without limitations. These vessels, in turn, will be flying the Panama flag, which, also in merchant shipping, is called a “flag of convenience”, for obvious reasons. Open ship registry services have come under criticism for a long time as governments suspect ports offering flags of convenience have cut corners in inspecting seaworthiness of vessels. The Amoco Cadiz, an oil tanker which went aground off the coast of Brittanny in France while transporting oil for Shell in 1978, resulting in the worst oil spill at the time, was flying the Liberian flag of convenience. But still, what the likes of Panama offer to ship owners perhaps outweighs everything else. Today, more than half of merchant ships in the world are flying the Panama flag. Soon, Panama began extending what it has been offering to the shipping industry to the financial world at large. Simply called offshore finance, Panama began to offer simple, and no-questions-asked company incorporation facilities. With no taxes and no questions, Panama soon began to attract corporations that, for various reasons, preferred to remain anonymous. Strict confidentiality laws were put in place while the names of corporate shareholders in companies need not be publicly registered. Another attraction is the state’s banking secrecy laws, where banks in Panama cannot give information about offshore bank accounts or their account holders although it was said that it provided exclusions whenever there are investigations related to terrorism, drug trafficking and other serious crimes. It is silent, however, on tax evasion and Panama has no tax treaties with other nations, and neither has it got any form of exchange controls. The offshore financial business is, however, not fundamentally illegal. Panama hosts dozens of international banks’ offices and together with other offshore domiciles, such as the British Virgin Island, Luxembourg, the Caymans, Guernsey, Bahamas and a host others, they have their own special purpose of existence. We, in fact, have one too, in Labuan. US Fortune 500 companies hold trillions of dollars in offshore financial centres. But, it is when these centres compete in their services’ offerings, that things can get a bit out of hand. Perhaps, because secrecy has somewhat become the central offering among offshore financial centres, the usage of such domiciles has, in recent decades, raised the question of morality. Why would anyone or any company keep their wealth in a tax haven other than to avoid paying high tax at home, entirely escape tax, or hide sources of their funds? Some say the days of such tax havens are numbered. In the merchant shipping sector, there are increasing calls now by nations to stop the practice of issuing flags of convenience to ships, especially since more governments are concerned about the safety hazards posed by the supposedly lax inspection done on vessels by the maritime authorities at such ports. In the finance world, the global fight against terrorism and narcotics may have a bearing on the future of offshore tax havens as governments seek to plug the funding pipeline for such activities. The recent revelations in the so-called “Panama Papers” could well provide more impetus to end the veil of secrecy provided by such tax havens. Mustapha Kamil is the newspaper‘s group editor. The profession has taken him to all corners of the globe

Top European powers join forces to clamp down on tax evasion

Date: April 14, 2016

By: Balazs Koranyi and Lindsay Dunsmuir

Top European powers join forces to clamp down on tax evasion

Europe’s biggest nations launched a joint scheme on Thursday to clamp down on tax evasion and corruption, responding to revelations of the rich and powerful stashing money in far-away tax havens in the so-called Panama Papers.

“In the future, nobody should be able to hide behind complex legal structures,” German finance minister Wolfgang Schaeuble said as he unveiled the initiative. “Fighting tax evasion requires a global response.”

The leak of thousands of confidential documents from a Panamanian law firm earlier this month has had political repercussions in many countries, forcing Iceland’s prime minister to quit and putting British Prime Minister David Cameron under pressure over his family’s financial affairs.

Britain, Germany, France, Italy and Spain agreed to share detailed data on the ownership of companies, trusts and foundations, making it more difficult for actual owners to hide their wealth and income from tax authorities.

“Britain will work with our major European partners to find out who really owns the secretive shell companies and the trusts that have been used as conduits for evading tax and laundering money and benefiting from corruption,” British finance minister George Osborne said.

Unveiling their proposals alongside IMF Managing Director Christine Lagarde and OECD chief José Ángel Gurría, the five nations committed to establishing a register to detail the beneficial owners of companies, trusts, foundations, and shell companies, making it available for tax administration and law enforcement authorities.

French finance minister Michel Sapin said the joint effort should be followed by even tougher measures against countries that will not comply.

“We have to speed up and we have to implement and we have to have the proper sanctions against those countries that would not join the international consensus,” he said.

The OECD has for years criticized Panama for its refusal to join the global push for transparency but its government appears to have taken heed of the backlash, announcing on Thursday that its commitment to financial transparency was “irreversible”.

“We need much stronger international tax cooperation. A lot of things have gone global, and it’s unlikely to recede,” Lagarde said.

In their first step, the five European nationals will launch a pilot initiative for automatic exchange of information on beneficial ownership and hope to broaden the scheme to include other nations.

Urging a global exchange of beneficial ownership information in order to remove ‘the veil of secrecy under which criminals operate’, the ministers acknowledged cracks in the current framework and called on others to apply enhanced standards of transparency.

(Additional reporting by Gernot Heller; Editing by Andrea Ricci)

World Bank: Tax evasion has “tremendous negative effect” on poverty fight

Date: April 14, 2016


World Bank: Tax evasion has “tremendous negative effect” on poverty fight

World Bank President Jim Yong Kim said Thursday in reference to the scandal surrounding the leak of the Panama Papers that tax evasion had a “tremendous negative effect” on the fight against global poverty.

During the opening press conference for the World Bank’s 2016 Spring Meetings, Kim said the creation of offshore companies in tax havens to evade taxes, a potential purpose of these hard-to-trace corporations, was a matter of “great, great concern.”

But he issued a warning to would-be tax evaders.

“The message I would send is that transparency is not going to move backwards. The world is going to become only more and more transparent as we move forward. So I would just say, be very careful,” Kim said.

He added that the International Monetary Fund and the World Bank had spent more than 20 years combating corruption and were prepared to help developing countries with weaker oversight systems.

The massive leak of 11.5 million confidential documents from Panamanian law firm Mossack Fonseca, which has provided corporate service in tax havens since 1970, revealed the offshore holdings of more than 140 politicians and public officials worldwide, including several current or former heads of state, and their family members.


What’s new this year in US expat taxes

Date: April 15, 2016

By: Kaitlin M. Krozel

What’s new this year in US expat taxes

While it’s nearly impossible to master the U.S. tax code, you don’t need to be a guru on the subject to demonstrate to your friends how up-to-date you are. Below are some important tax facts that every American expat living in Costa Rica should know for the current tax season:

  1. Your U.S. federal tax return is NOT due April 15. Yes, that’s right. Expats overseas on April 15 are granted an automatic two-month filing extension until June 15 and, if you need more time, an extension can be filed.

Note that if you owe taxes, you should still make a payment by the U.S. deadline or interest will start to accrue. The regular U.S. tax deadline is actually April 18 this year due to a holiday in Washington, DC. This gives taxpayers three extra days to make a tax payment. Payments can be made online at

  1. The tax benefits of being overseas have increased and decreased.

Increases: The Foreign Earned Income Exclusion, which reduces your taxable income, increased from $100,800 in 2015 to $101,300 for 2016. If married and both spouses work, each spouse is able to claim the exclusion. In addition, you may also be entitled to the Housing Exclusion which further reduces your taxable income by allowing for a deduction of rental expenses.

Decreases: Beginning with your 2015 taxes, you can no longer claim the additional child tax credit if you claim the foreign earned income or housing exclusion.

  1. Reporting of Non-U.S. accounts will change in 2017. FinCEN Form 114, more commonly known as the FBAR, is filed separately from your federal tax return. The FBAR is required if you had over $10,000 among all of your non-U.S. financial accounts at any point during 2015.

Don’t worry: this form does not trigger any taxes. Your 2015 FBAR is due by June 30, 2016 and can be filed online.

Bonus Fact: Starting with your 2016 FBAR, the deadline will change to April 15, 2017 and an extension will be available.

  1. Thieves are making it harder to get refunds. Identity theft and tax scams have increased rapidly. Thieves steal taxpayer information and file fake tax returns claiming refunds. To combat this growing problem, the IRS will be validating 20 new pieces of information on tax returns in 2016.

While these extra measures help protect taxpayers, they may also slow the processing of some returns which could mean a delay in issuing refunds. You can check the status of your refund online at

  1. Other deductions and credits are available. Don’t forget about potential deductions and credits for college tuition, home energy incentives, traditional IRA contributions and alimony paid. Dependent care expenses may also provide a tax credit which can even include expenses related to a live-in maid if both you and your spouse work.
  2. Most expats are exempt from the health care requirement. Also known as Obamacare, the Affordable Care Act requires everyone to have health insurance. The good news is that if you qualify for the Foreign Earned Income Exclusion, you are exempt.

To claim the exemption, file form 8695 with your tax return.

Happy filing!

Kaitlin M. Krozel is a CPA and former expat. Her firm, Krozel Capital, specializes in tax preparation for U.S. citizens living abroad.

Before the Panama Papers: The Low Point in the History of Offshore Accounts

Date: April 15, 2016

By: Andrew Feinstein

Before the Panama Papers: The Low Point in the History of Offshore Accounts

It has been called the most corrupt transaction in history—and it inadvertently diverted money to two of the 9/11 hijackers

The Panama Papers leak has recently drawn attention to the shady world of offshore accounts, but such accounts are nothing new. Case in point: such accounts were at the center of the 1986 deal that has been described as one of the most corrupt transactions in global trading history: the Al Yamamah (“the dove”) deal.

The deal, which netted British arms company BAE over $61 billion, was on its face a straightforward sale by arms company BAE of British-made jet fighters, naval vessels and infrastructure works to the Saudi government. Behind the scenes, however, there lurked a web of shadowy interactions between Saudi and British royals and politicians, BAE executives, shady middlemen and the Bank of England. Those involved with the deal have been accused in the years since of various forms of corruption: payments to agents well connected in the kingdom; barter agreements, where military hardware was exchanged for oil with extra barrels of crude added to the transfers to be sold by a Saudi dealer; and, the simple mechanism of overcharging for various aspects of the contract.

BAE eventually admitted to false accounting and other arms export related charges, but the use of offshore accounts in this case underlines a key point made clear by the Panama Papers scandal as well. Even if nothing technically illegal is taking place, it can become nearly impossible to trace the billions of dollars that move around the globe in these cases—and the consequences of that fact can be grave.

A pivotal figure in the Al Yamamah deal was the Saudi Prince Bandar bin-Sultan, a senior member of the Saudi royal family and the son of the kingdom’s Defense Minister at the time of the deal. He has described the 25-minute negotiation with the British Prime Minister, Margaret Thatcher, as the easiest arms deal he ever clinched. Thatcher’s son received about $17 million as an agent on the deal. Meanwhile, Prince Bandar received $1.4 billion in payment—and, for his birthday in 1998, a customized Airbus worth $105 million, painted in the colours of the prince’s beloved Dallas Cowboys. Police estimated later that $8.5 billion was paid on the deal in total, through a British Virgin Islands-based company.

From 2003 The Guardian newspaper started to report on the situation, after a series of tip-offs from whistle-blowers linked to the contracts. At first they thought the story was that there was a massive slush fund the company utilized to benefit Saudi officers and members of the royal family. For example, one of the most senior Saudi royals, head of the Saudi Air Force, was not only paid cash but his mistress, an aspiring actress, has said that she was accommodated, at BAE’s expense, in one of London’s most expensive neighborhoods, her drama classes paid, and cash and expensive gifts regularly supplied.

But the real story, it turned out, was the labyrinthine maze of offshore jurisdictions through which hundreds of agents were being paid. It wasalleged that through this complex and secretive system — an early and more complex forerunner of what was revealed in the ‘Panama Papers’ — Prince Bandar had been directly collecting more than £100 million a year, paid quarterly into Riggs Bank of Washington D.C., which was not only the capital’s oldest and largest financial institution but also its most august. Banker to 22 Presidents and most of the world’s Washington-based embassies, Riggs was so much a part of the American establishment that its majestic headquarters building was featured on the ten-dollar bill for decades.

Another £1 billion was said to be routed through companies in the British Virgin Islands, which was then moved into Swiss bank accounts thought to be linked to agents and to Prince Sultan, Prince Bandar’s father and the Defense Minister who signed the deal. Some of these commissions were offset by massive overcharging, up to 32% in the case of a certain model of jets.

The scandal lived on for decades, as it later came to light that in 2000, about two weeks after a man named Omar al-Bayoumi opened bank accounts for two of the 9/11 hijackers, his wife began receiving monthly payments totaling tens of thousands of dollars through a Riggs bank account held by Princess Haifa bint Faisal, the wife of Prince Bandar bin-Sultan, who by then had become the long-time Saudi ambassador to the U.S. The source of that money? Prince Bandar’s commission on the Al Yamamah deal, which the FBI and later the 9/11 Commission ultimately stated was not intentionally being routed to fund terrorists.

In late 2006, under pressure from British Prime Minister Tony Blair, the U.K.’s Serious Fraud Office was forced to end its two and a half year investigation into the Al Yamamah arms deal. The United States Departments of Justice and State, however, fined BAE over $400 millionand forced the company to acknowledge not only numerous violations of the Arms Export Control Act and the International Traffic in Arms Regulations, but also that it had paid unauthorized commissions on a number of arms deals.

BAE remains one of the world’s largest defense contractors. Riggs Bank is no more, having been taken over by PNC Financial Services Group of Pittsburgh.

The Al Yamamah deal is featured in Shadow World, a documentary feature premiering at the Tribeca Film Festival on April 16. This article is drawn from the book The Shadow World: Inside the Global Arms Trade by Andrew Feinstein {St. Martins Press, 2012} on which the film is based.

Five European nations will share information to curtail tax evasion

Date: April 14, 2016

By: The Washington Post

Five European nations will share information to curtail tax evasion


5 European nations try to curb tax evasion

Five European nations on Thursday launched a joint effort to clamp down on tax evasion, responding to damaging revelations of financial wrongdoing by the rich and powerful in the so-called Panama Papers.

The finance ministers of Britain, Germany, France, Italy and Spain agreed to share detailed data on the ownership of companies, trusts and foundations, making it more difficult for the owners to hide their wealth and income from tax authorities.

The leak of thousands of confidential documents from a Panamanian law firm has had political repercussions, forcing Iceland’s prime minister to quit and putting British Prime Minister David Cameron under pressure over his family’s financial affairs.

“A global move towards interlinking country registries will provide, for the first time, international real-time access to tax and law enforcement agencies on company ownership,” Britain’s Treasury said about the initiative, which was presented to the G-20 presidency.

Unveiling their proposals alongside International Monetary Fund chief Christine Lagarde and Organization for Economic Cooperation and Development Secretary General José Ángel Gurría, the five nations committed to establishing a register as soon as possible to detail the beneficial owners of companies, trusts, foundations and shell companies and making the information available to tax administration and law enforcement authorities.

— Reuters


Fannie, Freddie to cut mortgage balances

The federal regulator for Fannie Mae and Freddie Mac approved a plan to reduce mortgage balances for some U.S. homeowners who have been struggling to make payments in the aftermath of the real estate crash.

The program is a one-time offer for people whose loans are owned or guaranteed by Fannie Mae or Freddie Mac, the Federal Housing Finance Agency said in a statement Thursday.

To qualify, borrowers must meet specific criteria that include being at least 90 days delinquent as of March 1 and having an unpaid principal balance of $250,000 or less. The FHFA expects about 33,000 homeowners to be eligible.

“The national housing market has significantly improved in recent years, but there are still areas of the country where home values have not recovered and negative equity remains a real problem,” FHFA Director Melvin L. Watt said in the statement.

Mortgage servicers must solicit borrowers eligible for a principal reduction no later than Oct. 15, the FHFA said.

The agency also said that, to help minimize foreclosures, it approved changes to requirements for Freddie Mac’s and Fannie Mae’s sales of soured home loans.

— Bloomberg News


  • The Labor Department says U.S. consumer prices rose a modest 0.1 percent in March. Excluding the volatile food and energy categories, core consumer inflation also increased 0.1 percent, the smallest gain since August. Over the past year, overall consumer prices are up 0.9 percent and core inflation 2.2 percent. Grocery prices fell 0.5 percent in March, with cereal prices down 1.1 percent, the steepest slide since February 2006. Energy prices climbed 0.9 percent, the most since May. Gasoline prices surged 2.2 percent.
  • United Launch Alliance plans to cut up to 875 jobs before the end of 2017 to better compete against rivals bankrolled by entrepreneurs who include Elon Musk and Jeffrey P. Bezos, ULA’s chief executive officer said Thursday. ULA, a partnership of Lockheed Martin and Boeing, expects a first round of 375 job cuts to be accomplished this year, mostly through voluntary layoffs. ULA chief executive Tory Bruno said another 400 to 500 employees will be cut by the end of 2017. (Bezos owns The Washington Post.)
  • Cheaper jet fuel continues to give airlines a lift, helping Delta boost its first-quarter earnings by 27 percent, to $946 million. The airline spent one-third less on fuel than it did a year earlier, a savings of more than $700 million. That offset higher spending on labor, especially profit-sharing for employees. The news was not entirely rosy for Delta, however. Revenue dipped 1 percent as passengers continued to pay slightly less for every mile they flew. The airline predicted that the closely watched per-mile figure would decline again in the second quarter, although at a slower pace.
  • The Agriculture Department will buy up to 30 million pounds of wild blueberries to help with flagging prices and oversupply. Members of Maine’s congressional delegation said Thursday that the agency will pay up to $13 million for the berries. The purchase comes after the delegation sent a letter to the agency saying that prices of frozen wild blueberries have fallen by as much as half in the past five years. The Wild Blueberry Commission of Maine says two back-to-back years of big crops have created a wild blueberry backlog.


Major economies deal ‘hammer blow’ to tax evaders

Date: April 15, 2016

By: Holly Ellyatt

Major economies deal ‘hammer blow’ to tax evaders

Europe’s five largest economies have announced plans to share more information on business owners in a bid crack down on tax evasion.

The U.K., Germany, France, Italy and Spain are to share information on the ultimate owners of companies to make it more difficult for firms to “dodge tax or funnel corrupt funds.”

“Tax and law enforcement agencies from the five countries exchange data on company beneficial ownership registers and new registers of trusts, allowing for more effective investigation of financial wrongdoing,” the U.K. Treasury said in a press release on Thursday evening.

The agreement comes in the wake of the Panama Papers scandal earlier this month in which leaked papers from a Panama law firm shone a light on the hidden financial dealings of politicians and public officials around the globe.

The leak has caused casualties among high-profile European politicians with the Icelandic prime minister resigning after being named in the leaked papers and on Thursday, Spain’s interim industry minister followed suit after revelations about his offshore business activities. CNBC has not been able to independently verify the assertions.

Speaking on Thursday, the U.K.’s Chancellor George Osborne said the plans, which amount to a large data exchange, will be a “hammer blow” to tax evaders.

“Britain will work with our major European partners to find out who really owns the secretive shell companies and the trusts that have been used as conduits for evading tax and laundering money and benefiting from corruption,” he said at a news conference at the annual spring meeting of the International Monetary Fund in Washington, according to the press release.

Osborne later tweeted that the measures would improve tax transparency.

The Tax Advantages Of Life Insurance And Annuities

Date: April 15, 2016

By: Cyril Tuohy

The Tax Advantages Of Life Insurance And Annuities

Income tax returns need to be postmarked by Monday, April 18, unless advisors file for an extension. This year’s tax tips come courtesy of Prudential, whose website contains pages of tax-related strategies.

Material relevant to life insurance and annuities has been condensed in the paragraphs that follow.

Life Insurance

Life insurance can provide beneficiaries with cash to pay estate taxes. This may be a solution to liquidity problems in many estates that involve family-owned businesses, large real estate holdings and collectibles. Although life insurance proceeds pass on to beneficiaries free of income tax, the proceeds are not necessarily free of estate taxes.

Estate Tax Benefits

Insurance policies can be bought to provide heirs with income upon the policyholder’s death, or the policies can be structured to help pay estate taxes due at death. If you own the policy, it will be part of your estate and subject to estate taxes unless the policy is owned by an irrevocable life insurance trust.

Second-to-Die Life Insurance Policy

Life insurance can be used to create an estate or preserve its value after estate taxes through a survivorship or second-to-die life insurance policy that defers estate tax payments until the death of the second spouse. These policies provide liquidity to pay estate taxes.

Irrevocable Life Insurance Trusts (ILITs)

Creating and funding an ILIT with annual gifts helps maximize annual gift tax exclusions and trim estate taxes. ILITs purchase a life insurance policy on your life and use your gifts to pay the premiums. The trust becomes the owner as well as the beneficiary of the life insurance policy. At your death, proceeds are paid to the trust, which can use the proceeds to purchase assets from or make a loan to your estate. Assets purchased by the trust may then be distributed to the trust beneficiaries — your heirs.

Lifetime Asset Transfers

Tax-free gifts are allowed through the annual exclusion. If the market value of the gift exceeds the amount of the exclusion, the excess reduces the amount of the applicable credit. If you use a portion of the applicable credit toward lifetime gifts, less value may be transferred federal estate tax-free at death. However, all income and appreciation of assets properly transferred during your lifetime are removed from your taxable estate.

Gifting to Individuals

Gifting assets removes future appreciation on the asset gifted, which could mean lower federal estate taxes. You may realize income tax benefits by transferring any unrealized appreciation in the gifted asset to the individual, who may be taxed at a lower rate.

You cannot transfer the unrealized loss in any asset that has decreased in value, however. In such a case, neither the donor nor the recipient can benefit from the tax loss. The donor may, however, sell such an asset, recognize the tax loss and gift the sales proceeds.


Annuity contracts can offer tax-deferred growth. Because there is no distribution required at age 70½, the money continues to grow tax-deferred.

Annuities also give contract holders control over when to pay taxes by timing distributions, offer contract holders the opportunity to make unlimited contributions, let contract holders decide if they want guaranteed income for life and in the case of fixed-rate annuities, a fixed rate of return.

The death benefit passes on the account value to beneficiaries, which may avoid probate, but is not tax-free.

Tax-Deferred Accumulation

If owned by an individual, all earnings in an annuity are free of federal, state and local income taxes until you start receiving annual payments. Withdrawals of earnings are subject to ordinary income tax, and a penalty may apply for distributions taken before age 59½.

Accessing Annuity Income

Annuities give their owners access to their money, although insurance company surrender charges may apply.

Distributions from a deferred annuity on a nonannuitized basis consist of withdrawals of earnings first, and therefore taxable. But withdrawals exceeding earnings are considered a tax-free return of principal.

This option keeps your money growing tax-deferred while allowing you to draw income. But since the contract holder determines the amount of the distributions, the annuitant controls when and how much in taxes to incur.

But since the withdrawals are not considered annuitizing the policy, they are taxed as earnings first until all the earnings have been withdrawn.

A lump-sum distribution, however, means the contract holder bears the tax liability on earnings all in a single year and push an annuitant into a higher tax bracket.

Annuitants who choose a lifetime annuity option will receive annuity payments that are taxed according to the exclusion ratio. This means that each payment consists of a partial payment of interest, subject to ordinary income tax, and a partial payment of principal, tax-free, until the entirety of the principal has been returned.

Barring some exceptions, early withdrawals incur a tax penalty on earnings.