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Monthly Archives: May 2012

Swiss bank Pictet gave data to U.S. in tax probe

May 8, 2012

ZURICH (Reuters) - Swiss bank Pictet said on Sunday it handed over bank account details to U.S. authorities probing cases of tax evasion, as a newspaper reported it had accepted funds from two former UBS clients suspected of having cheated on taxes.

Pictet said in a statement the data handover took place in November 2010 via the Swiss tax office, which had received a request for assistance from its U.S. counterparts.

This is the latest episode in an ongoing dispute between the United States and Switzerland over wealthy Americans accused of avoiding taxes by hiding money in secret Swiss accounts.

Eleven Swiss banks - including Credit Suisse and Julius Baer but not Pictet - are under scrutiny by the United States for aiding U.S. citizens suspected of tax dodging.

Banking secrecy has helped the Swiss build up a $2 trillion offshore wealth management industry.

The investigation into the 11 Swiss banks was fed by data culled in a crackdown on UBS, which that bank settled in 2009 by handing over thousands of client data, paying a fine and admitting wrong-doing.

In a related interview with the SonntagsZeitung, Patrick Odier, president of the Swiss Bankers Association, said another case like that of Wegelin & Co. could not be ruled out.

Wegelin, Switzerland's oldest bank, buckled under the pressure of a long-running campaign by U.S. tax authorities and broke itself up in January. Wegelin had accepted money from UBS clients suspected of dodging tax.

"U.S. authorities could have enough material to weigh on banks other than those on the 11-bank list," Odier said.

Switzerland is trying to get investigations into 11 banks dropped in return for the payment of fines and the transfer of U.S. client names. It is also seeking a deal to shield the remainder of its 300 or so banks from U.S. prosecution.

Swiss Finance Minister Eveline Widmer-Schlumpf has said she hoped for a deal before the end of the year.

"We need to draw a line under it, so there are no more charges," Odier said.

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Read more at: Tax Times blog

FATCA timelines and release dates

May 8, 2012

On May 7th, at the 26th Annual Tax Reporting & Withholding Conference in Arlington, VA, IRS representatives discussed timelines and release dates pertaining to Chapter 4 (FATCA) implementation.

§  Final regulations are still expected to be released at the end of this summer.

§  Draft FFI Agreements should be available by the end of June.

§  There may still be some flexibility in the implementation deadlines; however, the IRS needs to know how much time is needed for each portion and requested specific comments.

§  Coordinating rules for FATCA and Chapter 3 (U.S. nonresident withholding) and Chapter 61 (backup withholding) are in process.

§  There is work being undertaken to develop a model intergovernmental agreement; however, no specifics were provided on when a model intergovernmental agreement would be provided.

In addition, the IRS said that there will be a Form W-8 for individuals, and a Form W-8 for entities. The Form W-8 for entities is expected to be complex.

Read more at: Tax Times blog

US Tax Court Protects Transfers of Family Business

May 7, 2012

The recent US Tax Court ruling in Wandry v Commissioner of Internal Revenue Service (IRS) has been welcomed by tax advisers to family businesses.

The case was brought by a Colorado couple, Dean and Joanne Wandry. They owned a limited liability company called Norseman, worth about US$11 million in 2004. At that point they consulted a tax planning adviser on how to transfer shares in the business to their children and grandchildren without incurring gift tax. At the time, the federal lifetime gift tax exemption was US$1 million, plus US$11,000 per gift.
The difficulty with such transfers is that a closely held family business is often hard to value accurately. Even if the owner obtains a professional valuation at the time of the gift, the IRS will often challenge it later. So, if the owner gives away a fixed percentage of the company, which he calculates will fall within the gift tax exemption, the IRS may later decide that it exceeded the exemption. Then a tax charge of up to 35 per cent of the excess becomes payable.
The Wandrys avoided this by specifying the value of their gifts in cash terms. They made nine gifts adding up to a total value of US$1.099 million, which was within the exemption. The actual fraction of the company equity to be given away was left open in the transfer deed. It was to be calculated later, depending on whether the IRS accepted the Wandrys' own valuation of the business.
The IRS did indeed challenge the Wandrys' valuation, claiming that it was a 20 per cent underestimate. Moreover, it did not accept that the Wandrys could adjust the number of company shares transferred to their children so as to make the transfer again fall within the gift tax exemption. Accordingly it imposed a tax charge on the gifts.
The Wandrys appealed, and now the Federal Tax Court has upheld their appeal. The judge ruled that the couple intended to make a gift equal to their exemptions, so that they never actually transferred any more than that amount. Thus no tax was due on the gifts.
The decision allows tax-free transfers from one generation to another "with certainty and in an orderly manner", according to tax expert David Kautter. Previously the only certain way of avoiding an unexpected gift tax charge due to an IRS revaluation was to allocate the excess gift to a charity - a method that had its own drawbacks.
However, the IRS is not likely to be happy about the decision and may yet appeal it. Thus business owners who rely on Wandry to take advantage of the current US$5.12 million gift-tax exemption may be taking a risk.
Even if the IRS does not appeal, it may seek a change in the law to reverse the Wandry ruling - though not with retrospective effect.
Sources
Wall Street Journal
US Tax Court (PDF file)

Read more at: Tax Times blog

The US Experiences a Dramatic increase in Citizenship Renunciation during 2011.

May 1, 2012

According to Internal Revenue Service (IRS) figures, at least 1,800 Americans renounced their USA citizenship in 2011, an all-time record at eight times the 2008 number.

The USA's worldwide taxation system, including the Foreign Bank and Financial Accounts (FBAR) and now the Foreign Accounts Tax Compliance Act (FATCA) regimes, is to blame, according to lobby group American Citizens Abroad.

The State Department said records it keeps differ from those published by the IRS. They indicate that renunciations have remained steady, at about 1,100 each year, said an official.

The decision by the IRS to publish the names is referred to by lawyers as 'name and shame.' That's because those who renounce are seen as willing to give up their citizenship primarily for financial reasons.

There's also an 'exit tax' for the very rich who choose to leave. During the last 25 years, a number of millionaires and billionaires have renounced their citizenship. Among them: Ted Arison, the late founder of Carnival Cruises, and Michael Dingman, a former Ford Motor Co. director.

Read more: http://www.dailymail.co.uk/news/article-2131225/Record-number-American-citizens-renouncing-citizenship-avoid-paying-taxes.html#ixzz1ssrtBbyT

Read more at: Tax Times blog

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