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According to Law360, for years, inertia has been Nitin Motwani’s greatest foe in his attempts to lure hedge fund owners in the northeast to Miami, which he has pitched as a tropical low-tax paradise. But with the Republican tax bill proposing to eliminate deductions for state and local taxes, he’s sensing an opportunity to finally overcome it.

Motwani, a Miami Downtown Development Authority board member, said the volume of requests for help with logistics — finding an attorney in Miami or a recommendation for an office broker — has increased since the tax bill began making its way through Congress. If the proposed changes to the tax code become law, it could be the final incentive that could trigger a flow of hedge funds from high-tax areas like New York and Connecticut to South Florida.

“We’ve always had good weather and good taxes, but this tax change provides another incentive,” Motwani said. “Inertia can be a dangerous thing — it’s just easy to stay put. But you add one more reason to rethink it, and then people are looking at it with a fresh set of eyes.”

Motwani is in charge of the initiative at the DDA aimed at trying to lure fund managers to Miami, which ramped up recently through a formal partnership with the Hedge Fund Association announced in August. The two organizations will host a private event Friday at the Perez Art Museum Miami during Art Basel, the annual art exhibition that draws thousands of visitors to Miami in early December.

The plan is to educate attendees about what he calls the “new Miami.”

“Lots of people think they know Miami because they come down for a weekend of fun in the sun,” he said. But the story of the city is one not just of beaches and sunshine but also of a sophisticated financial market in an international gateway city with a growing number of cultural institutions like the Perez museum, he said.

And as the GOP tax bill inches closer to passage, many hedge fund managers are taking a harder look at the Magic City.

Both the House and Senate versions of the tax legislation would remove almost all deductions for state and local taxes, which would hurt high-income taxpayers in high-tax states the hardest. The only deduction to survive the process so far is one for up to $10,000 in property taxes.

From the outset of the tax debate, the notion of changing state and local tax deductibility has been one of the most contested aspects of the process, with opponents arguing that it would not only take away a core tenet of the tax code that has stood for 100 years but also disproportionately impact high-tax states such as New York, New Jersey and California.

But for states with no income tax, like Florida, it could be a boon, and Miami’s boosters argue it’s better positioned than other cities to support the alternative investment industry. The city is an international gateway, has multilingual talent available and is an investment hotspot for wealthy Latin Americans looking to park their money in the United States. And with more Class A office space going up in Miami’s financial center of Brickell, the city now has the physical infrastructure to support these firms, according to Hedge Fund Association president Mitch Ackles.

The money flowing in from Latin America has made a huge impact in the growth of Miami’s financial community, according to Tom Krasner, who co-founded Concise Capital Management in 2003.

Krasner has seen a number of managers opening offices in the city, though not moving their headquarters because of the difficulty in relocating an entire operation. Efforts by organizations like the DDA and the Miami City Commission have been helpful, but he said what is really making a difference in attracting fund managers is the transformation of the city in the last two decades.

The funds Ackles said are ripe for plucking from northern climes are the smaller, emerging funds in their early stages, before they become established and loath to move. He added that with the advent of companies that allow hedge funds to outsource their investor relations and paperwork, many smaller funds can stay lean, meaning there are fewer people to transplant.

Contact the Tax Lawyers at 

Marini & Associates, P.A.  

 

 

The US Department of Justice (DoJ) has announced a significant change in its criminal sentencing policy regarding offshore tax violations. The DoJ had previously Warn Potential Tax Cheats: Tax Crimes Result In Criminal Prosecution, Lengthy Prison Sentences, And Fines on April 6, 2017.

Now at the 34th Annual National Institute on Criminal Tax Fraud in Las Vegas on December 7, 2017, Mark Daly, DOJ Tax Division Senior Litigation Counsel announced a major new shift in how the Department of Justice plans to argue offshore tax prosecution defendants should be sentenced.

Instead of turning to the standard Part 2T of the United States Sentencing Guidelines (Offenses Involving Taxation), the DOJ will now assert that Part 2S1.3 (Money Laundering and Monetary Transaction Reporting) is the correct guideline for offshore tax cases.

Why does this matter? Two reasons: 

First, Part 2T uses the amount of TAX LOSS as the primary determinant of the offense level. Part 2S1.3 instead uses the ENTIRE VALUE of the Offshore Bank Accounts.

• For your offshore tax defendants, instead of a sentencing base level determined by the amount of tax loss to the IRS as determined from the flow through of that undisclosed income on the relevant tax return, instead the DOJ will argue that the full value of the offshore bank account should be used to determine the offense level.
• Daly gave the example of his United States v. Kim case in the Eastern District of Virginia, where the Part 2T tax loss was on the order of $150,000, but the Part 2S1.3 value was $28 million. Depending upon the circumstances, that could be a ten-fold increase in the sentence. 
• In Kim, the DOJ asserted that Part 2S1.3 was the correct guideline, but due to a prior agreement with the defendant, the DOJ would in that case agree to sentencing based on Part 2T. Daly stated that the DOJ intended its language asserting that Part 2S1.3 was the correct guideline as a warning to the defense bar in other such cases.

The second problem is that Part 2S1.3 allows for a 2-level enhancement where a defendant has also been convicted of an offense under subchapter II of chapter 53 of title 31, which includes filing a false or misleading FBAR.

• Because an FBAR must be filed each year along with the tax return, the DOJ will now seek to add charges under title 31 chapter 53 to obtain a 2-level enhancement at sentencing.
• Daly stated that the DOJ may still assert that Part 2T is the correct guideline in certain offshore tax cases, but he was unwilling to articulate, despite pointed questions from the audience, just what criteria the DOJ would use to make such distinctions.
• This means that the USDoJ will, in future, press for tax evaders to be sentenced based on the value of the undeclared offshore accounts, rather than the unpaid tax, as in previous cases. The result could be that penalties will, in some cases, be increased by a factor of ten. 

The first case in which this new principle has been applied is United States v Kim. In United States v Kim, the Part 2T tax loss was only around USD150,000, but the Part 2S1.3 value, based on the value of Kim's bank accounts at Credit Suisse, UBS, Bank Leu, Clariden Leu, and Bank Hofmann, was USD 28 million.

At this point you have to consider that this may be the DoJ's position, but you should also be prepared to argue that this is vastly different and inconsistent with  the pattern of sentencing in the past and contend that the sentence for your Client/Defendant be consistent with what has historically been done in prior cases.

  
 

Sources

• JD Supra
• Mitchell Williams