FBAR – New Rules

Here’s How Taxes Work for Citizens and Residents Living Abroad

Here’s How Taxes Work for Citizens and Residents Living Abroad

For Americans or legal residents living on tropical islands or traveling, they must consider the possibility of being locked up just in case fate does not favor them. That is why it is very important to pay taxes even when one is overseas so that when something happens, the government can still protect these individuals. Contrary to popular belief, moving out of the States does not relieve the individual of tax obligations. The IRS has the knack of tracking anyone anywhere in the world.

Here are some tips on how citizens and legal residents can manage their taxes and tax liabilities while they are outside in the country and remain within good graces of the government of the United States.

  1. Understand the Foreign Earned Income Exclusion

Resident aliens as well as US citizens are subject to federal income tax when set on the worldwide income. The FEIE or the Foreign Earned Income Exclusion lets the qualified taxpayers exclude the taxable income and reach it to around $101,300 of the earned income that is subject to only two requirements. It is also very important to note that the income the individual receives must be earned because he is working. It may be as an independent contractor or an employee and also not apply to the passive income like dividends, pensions, income and rental income. Independent contractors also receive what they call a 1099-MISC and still be subjected to self-employment tax (Medicare and Social Security) on their net income. Another thing to note is that this can also be optimized simply by opening the S corp and the other potential offshore structures which depend on the individual tax situation of the person.

  1. Understand the requirements of the FEIE

There are two requirements that can be done. First, the individual must establish a “tax home” if they are in a foreign country or in other several countries. Another is that they have to satisfy the “Bonafide Resident Test.”

  1. Have a Fire Sale

The easiest way for an individual to meet the “Tax Home” requirement is to also cut the ties with the United States. This means that the individual has to give up the apartment. To be more elaborate, when the individual has to give up their apartment, cancel their lease or sell their car, all with the documentation that they will leave.

  1. Get Out

The IRS site describes that the hardest process when fulfilling the requirements is the Bona Fide Residence Test, which has already previously been mentioned. This can be done when the individual is a resident of a foreign country for a period that has not been interrupted and includes an entire tax year. This means is that the individual must plant their flag in other countries for a majority of the year. It may not necessarily be advisable to stay in just one country, for example, being confined in a jail cell, but these individuals must prove that they are there in the long run. It is not black and white and some examples that prove residency are:

  • Establishing a temporary home in foreign countries for periods that are no definite. An example is having a lease for the long run and also owning a home there.
  • Physical presence in a foreign country. This means that they have to be residing in the mentioned country.
  • The assumption as well as economic burdens including paying the local taxes
  • Actively participating in communities on a cultural and social level. Citizens and residents must acquire their library cards and gym memberships to prove that they are living there.
  • Marital status and family status – if the residents have spouses or family members in the country they are in, it is easier to file this.
  • Other documentation like local bank account info, driver’s license and health insurance
  1. Physical Presence Test

 For new generation of expats, the physical presence test is more applicable. This includes the digital nomads who usually jump from one country and then to another. According to the IRS website, these individuals must be physically present in a country for 330 days in the course of 12 months. The 330 days do not have to be consecutive. The Physical Presence Test does not really depend on the residence that the individual has established, neither is it about proving the return the United States or the reason and purpose of staying abroad. The Physical Presence test only needs the time that the individual is in that country. The intention, regarding the purpose and nature of the stay abroad are also relevant when determining whether the requirement mentioned in Step 3, “Tax Home”, is met.

The very point of this discussion is that anyone can pick up and also leave any day for that year. They can also travel anywhere in the world and physically work in the countries just on their laptop and then return to the United States after one year. As long as this individual was in the United States for 35 days or even less, as long as this is within the period, they still qualify for what they call the FEIE. They do not have to pay taxes on the very first $101,300 in the total of earned income. This case, the split is also divided on a prorated calculation. Approximately this would amount to $50,000 in 2017 and also $50,000 in 2018 for the year period that has been split between the two calendar tax years.

It is very important to understand the tax implications of a country that the citizens or residents are traveling through or possibly be living in. In general, if they are spending more than 183 days or around half a year in another country, they must file as a fiscal resident of that year. For a person who is perpetually traveling or what they call a digital nomad who is qualified under the Physical Presence Test, then this is not any problem. If the individual plans on taking a bona fide residency somewhere and then it gets tricky.

Countries such as Hong Kong, the Seychelles, Taiwan, Singapore, Panama and Costa Rica have what you call a “territorial tax system.” Only the tax income is generated within the country’s borders. There are also a number of countries that have no income taxation such as Bahamas, Bermuda, Monaco, United Arab Emirates, Cayman Island and Andorra.

The choice becomes whether the individual has to choose a country that is for tax purposes and then just pay the required tax in that country at a low income tax rate. Examples of these countries are Bulgaria, Malta and Portugal or also choose to set the residency up in the country. The resident and citizen can be a permanent resident in various countries, but it still depends on the rules of the locality. There are also some people who split the time between the places such as Colombia and Panama and also claim the residency in Panama because of the more favorable tax treatment. In any event, it is also important to be mindful of thresholds when one becomes a tax resident. The aforementioned 183 days is usually the general rule of thumb and this does not apply to various countries. In these complicated cases, it is quite prudent to also receive the counsel of a CPA or a qualified tax attorney.

  1. Staying Out

If the resident or citizen craves for Jimmy John’s and Costo and actually decides to return for these reasons, it may cost him thousands of dollars. Just like qualifying for the status of a hotel chain or an airline, the rules that comply with the Physical Presence Test are quite strict. To begin with individuals, they must be in other countries for around 330 to 365 days. This does not have to be counted within the calendar year. As long as the individual is in another country for around 330 out of the 365 days, then it can be prorated.

However, there is a different requirement if the individual is in international waters or flying over US airspace. If he or she is visiting the United States and have to give an extra hour because the flight is delayed and if it has been missed, then this will also be counted towards allotting the days. Another scenario is if they leave the West Coast around 11:00 pm that is bound for Europe and also charged additional days because this is still in the jurisdiction of the United States. It is very important that there are buffer days remaining so that the mistake would not be as costly as it would.

How to Pay Zero Taxes to the US with the Foreign Earned Income Exclusion

The IRS has built a time bomb to the FEIE. If residents or citizens fail to submit and file their US returns, then they are audited by the IRS. They won’t be able to take the FEIE as well. Even if they are working abroad and would eventually owe the United States government nothing, it would still result to the individual paying the United States 100% of their income.

The same can be said to those who filed their US returns but are not truthful about their foreign salary because they omit this. The downside to that is the minute the individual is audited, they can lose the FEIE and also pay taxes that is 100% of their salary. The way to go around this is that they have to claim the FEIE or they would lose this entirely.

The most common reason why this happens is that the individual though they only need to report their US income to the United States and the foreign source income to the foreign country that they rare residing. Not reporting your foreign salary to the IRS is a big error that can cost them big time.

The very take-away from this is that the United States require every citizen and resident alien, whether they are in the United States or not, to pay their taxes.

Consequences of not filing US tax returns

Living abroad for a number of Americans and legal residents may seem like an adventure of a lifetime. They are exposed to various experiences and their senses are constantly invigorated by events that are delightful, interesting and unexpected. For most, it is the stuff of dreams. There are also unfortunate individuals. Unfortunately, these dreams can also turn dark quickly especially when they discover that they did not comply with the Internal Revenue Service because they did not file their US income tax.

Every year the United States spends 5 billion dollars simply for enforcement activities. This includes auditing, collections, discovery and prosecutions which pretty much yields around that amount all in additional tax revenue. It is clear that their financial best interest is about to get easier for the US government. They can also assess and prosecute the Americans living abroad and who are behind the filing of the US income taxes.

Just like any US resident, if you are an American residing in any country abroad and fail to file the US or the state taxes, then they will receive penalties for not filing their taxes, even if they do not owe the taxes to the state government or the IRS. The failure to file the penalty can also be thousands of dollars and can also take part in the advantages, benefits and special reductions that are offered to the US expats that can help reduce the US tax obligation. There are also news that have been enacted and provided the United States a crystal clear picture of who among the Americans are living abroad and are also not filing, what they are worth and where they are living. The days of living beyond the grid is waning and a new era of what is focused and enforced. The United States have entered this data by sharing the agreements at a level that is most sovereign and between the five of the largest countries within a swarm of the additional countries that are asked to join into data sharing.

Tax Implications Of Becoming a US Resident / Citizen

Are you planning to get a US Citizen or Stay in the United States?  Are you planning to invite your parents to the United States?  These are very important decision and can impact your tax liability in the United States and in India.

Join us for our next webinar to learn what you need to know before becoming a US Resident.


Where is Your Tax Home?

If your job requires you to travel from time to time, some of the expenses that you incur while traveling away from home may be entitled to tax deductions. In this sense, however, home does not necessarily refer to the place where you live but the place where you work. This is what the Internal Revenue Service (IRS) refers to as your tax home.

Determining where your tax home is is the first and most fundamental thing that you need to do if you want to determine if you are really traveling away from home.

Basically, your tax home refers to the general area of your workplace, regardless of where you actually live. So, if you work in New York, your tax home is New York.

Do not be confused if the place where you work is different from the place where you lay your head at night, because your tax home designation has nothing to do with where you live. In fact, you may travel miles from your permanent residence to your workplace every day, but your workplace will still and always be your tax home.

 Why You Need to Determine Your Tax Home

Often, when you attend a cocktail party and are asked where your home is, your answer is your current place of residence. However, that is not necessarily the case if the one asking you is from the IRS.  While their tax home is the same as their personal home for some taxpayers, the story is different for those who frequently travel for work or business. Don’t think that your tax home doesn’t deserve a thought, because it does matter especially for taxpayers like you.

According to the IRS, your travel can be considered deductible if your work or business requires you to be away from home longer than your normal work hours. Given that, it is clear that the key criterion in determining if your travel expenses are deductible is if your travel takes you away from your tax home.

Differentiating your tax home from your personal home is crucial because only those expenses incur while you are away from your tax home are considered by the law as deductible.

Your Tax Home, As Per the IRS

 IRS’ definition of tax home is plain and simple—Your tax home is your regular place of business or post of duty, regardless of where you maintain your family home.

Basically, your tax home covers the general area or the entire city where your business or workplace is located. If your office is somewhere in Cortlandt Street in New York, then your tax home is New York. If you travel to Louisville every week for your business but return to your permanent residence in Nashville on weekends, your tax home is still Louisville even if you call Nashville home.

 Why Your Workplace Must Be Your Tax Home

There is a reason the IRS requires every taxpayer to know their tax home, and there is a reason the tax home designation exists in the IRS law. The purpose of the tax home designation is for the deduction of travel expenses associated with work or business. This explains why in the eyes of the tax-collecting agency, your workplace is your home and not your apartment.

Imagine living miles outside Louisville but working in the city. If there is no tax home designation, then you must also be counting your house in Nashville out as your tax home. If that is the case, then theoretically, you can declare each and every expense you spend in Nashville as a business or work-related expense. The IRS is wise enough not to fall for such tricks.

When You Have More Than One Regular Place of Business

 Some taxpayers find it hard to determine their tax home because they have multiple places of business. Should that be your case, then your tax home must be your main place of business or the place where you conduct majority of your business. So, if you have offices in Nashville, Louisville and Franklin, then you must declare the place where you do most of your work as your tax home. In this case, the IRS expects you to consider the following in determining your tax home:

  • How much is the total time that you normally spend in each workplace?
  • How much work do you usually accomplish in each workplace?
  • How much money do you make in each workplace? Is the income you earn from conducting business there significant or insignificant?

Of the above mentioned criteria, the first one is the most important since the IRS states that the place where you conduct most of your business should be your tax home. Logically, the workplace where you spend most of your time is the same place where you conduct majority of your business.

Take this as an example. You reside in Birmingham since you have a seasonal job there for nine months each year. Annually, you earn around $50,000 from your seasonal job there. For the rest of the year which is equivalent to three months, you work in Atlanta where you earn $20,000. In that case, you may consider Birmingham as your main place of business since you spend most of your time there and you earn most of your significant income there.

When You Do Not Have a Regular or Main Place of Business

 Taxpayers who have more than one regular place of business and those who do not have a regular or main place of business usually have the same dilemma in determining their tax home. According to the IRS, for taxpayers whose nature of work causes them to not have a regular or main place of business, their tax home must be the location of their residence or where they regularly live.

Say you are a freelance web designer and do not have a regular office where you conduct business. Since your job requires you to visit offices of your clients to discuss business with them, and since you do not really have a workplace of your own, then your tax home is your house.

Freelance workers and travel bloggers are perfect examples of taxpayers who do not have a regular workplace, since they do not have a fixed place where they conduct business. In this case, you do most of the work at home so your tax home may be your actual home or your personal residence.

Take a look at these factors which the IRS considers in determining your tax home if you do not have a regular place of business:

  • You at least perform part of your business in the area of your personal residence and use it for lodging while conducting business.
  • There are living expenses in your personal residence that you are compelled to duplicate because your job or business needs you to travel away from home.
  • You do not abandon the area of both your place of lodging and personal residence are located, members of your family live with you in that residence, and you use that home for lodging most of the time.

Remember that you need to meet all the three criteria so you can consider your personal residence as your tax home. If you meet all the three factors, then any travel expense that you may incur away from your personal home can be considered deductible since they meet the “away from home” requirement for business travel deductions.

Unfortunately though, if you only meet one of the three factors, then the IRS can consider you as not having a true tax home so you can write off none of your travel expenses.

For example, your family residence is located in Indianapolis. In that city, you work 15 weeks a year. For the rest of the year, you work for the same employer in Cincinnati, where you dine in expensive restaurants and sleep in a rented apartment. For you, it doesn’t really matter whether you are in Indianapolis or in Cincinnati because your salary is the same whether you are in one city or the other. However, since you conduct most of your business in Cincinnati, that city is considered your tax home. That means that even if your expenses there are bigger than when you are in Indianapolis, you cannot deduct any of your expenses for meals and lodging while you are there. When you return to your family home in Indianapolis, you are away from your tax home so you can deduct the cost of your round trip between Indianapolis and Cincinnati, as well as part of your family’s living expenses for meals and lodging while working in your personal home.

When You Do Not Have a Fixed Workplace and a Fixed Home Address

 In determining your tax home, there is something much worse than having more than one regular workplace or not having a regular workplace at all– Not having a regular place of business or post of duty and no personal residence at the same time.

While determining your tax home is not that easy if you have more than one regular workplace, it becomes easy when you finally determine which among your workplaces is your tax home. And while determining your tax home is not that easy when you do not have a regular workplace, it becomes easy when you have a personal residence which you can call your tax home.

However, things become a bit complicated when you do not have a regular place of business and you do not have a place where you regularly live at the same time. In that case, the IRS considers you as an itinerant.

The IRS law states that the tax home of an itinerant or a transient is wherever he works. If you belong to this category, then you are not entitled to travel expense deductions because no matter where you work, you are never considered to be traveling away from home.

Since as an itinerant, everywhere you work is your tax home, you are never really away from home, which means that you cannot write off any of your travel expenses.

An outside salesman is an example of an itinerant. Say you are an outside salesman whose sales territory covers different states. The main office of your employee is in Memphis but you do not work or conduct any business there. Your work assignments are relatively temporary and you have no idea about the locations of your future assignments. Your sister is renting out a room somewhere in Saint Louis so you stay there for a couple of weekends each year, but you do not conduct any business in that area. You do not pay for your accommodation there either. Since you do not satisfy any of the previously mentioned factors that will make your regular home your tax home, then you are considered an itinerant and therefore have no deductible travel expenses.

 When Traveling is Considered Traveling Away from Your Tax Home

 Regardless of which of the abovementioned categories you fall under, all the said criteria boil down to the fact that determining your tax home is critical in determining your tax liability when traveling. Once you have already identified your tax home, it will become easier for you to know which of your travel expenses you should write off and which you should not.

It is also worth mentioning that these tax home rules are the same whether you are an employee or a self-employed individual, although there are certain instances when the degree to which you can write off your business travel expenses may differ.

For instance, employees can only deduct work-related expenses that they have not reimbursed from their employers, while self-employed individuals can deduct the full amount of their travel expenses as long as they are incurred away from their tax homes. In any case, remember to keep well-organized records like receipts, checks and other documents to support your deduction claims.

FBAR: Who Should File?

Under the American tax law, if you are a U.S. citizen who has either signature authority over or a financial interest in any foreign financial account, you are required to report your account annually to the Department of Treasury via electronic filing.

May your foreign financial account be a bank account, trust, or mutual fund, you have the obligation to file both the Financial Crimes Enforcement Network (FInCEN) 114 and Report of Foreign Bank and Financial Accounts (FBAR).

Unfortunately, many U.S. citizens are not very familiar with the FBAR so before they know it, the U.S. government is already there to go after them and their penalties have already piled up.

Cases of U.S. citizens residing outside the U.S. being up the creek for not filing their FBARs are rampant these days, thanks to these people’s ignorance of the law. But since ignorance of the law excuses no one, you can’t just say no one told you about this FBAR thing and expect to be absolved at the end of the day.

Case in Point

Recently, a U.S.-Canadian citizen was in trouble for failure to file his Report of Foreign Bank and Financial Accounts (FBAR).

Jeffrey Pomerantz, a dual citizen who currently resides in Vancouver, Canada, is now being sued by the U.S. Justice Department for failing to file to the U.S. government his FBAR. The department filed the case in the U.S. District Court in Seattle and is now seeking civil and late payment penalties amounting to $860,300.

While Pomerantz filed his income tax returns to both the Canada Revenue Agency (CRA) and Internal Revenue Service (IRS) in 2007, 2008 and 2009 he failed to file the other form known as the FBAR.

According to Toronto-based lawyer Hari Nesathurai, the past couple of years have seen an increase in cases of Canadian residents being chased by the U.S. government for failure to file their FBAR reports. The lawyer said FBAR is a problem for many Canadian residents who are subject to U.S. tax laws, because they do not realize that even a Registered Retirement Savings Plan (RRSP) calls for a disclosure.

“Many people don’t realize that and it’s troubling because it’s a penalty which applies on a non-disclosure even though there may be no tax payable,” he said, adding that the FBAR is particularly a major concern among Americans and U.S. citizens or green card holders who do not fully understand their reporting obligations.

Going back to Pomerantz’s case, the lawsuit against him filed in May 2016 indicates that the events that led to the U.S. government chasing him for his failure to file his FBAR seem to have begun in 2010 with an audit, which is now before a different court.

The lawsuit reveals that even before the income tax examination commenced, Pomerantz had already failed to file a Treasury Form TD F 90-22.1 (FBAR) for the three years in question to offer a disclosure of his existing foreign accounts. However, the U.S. Justice Department said Pomerantz opened at least two personal checking accounts at the Canadian Imperial Bank of Commerce prior to Jan. 1, 2001, and both accounts were active from 2007 to 2009.

The Justice Department also said in 2003, Pomerantz established a corporation in the Turks and Caicos Islands named Chafford Ltd., which held his personal investments. That same year, he also opened three bank accounts in Sal Oppenheim JR & Cie in Switzerland, and in 2007, he opened two more accounts in the same country and the same bank.

The lawsuit also reveals that during each of the three years, he incurred balances not only in the CIBC bank accounts but also in different Swiss accounts over $10,000.

Although the complaint of the U.S. Justice Department says that Pomerantz resided in the United States from 2007 to 2009, the documents presented by his camp claim that he and his wife, also a dual citizen of Canada and Norway, had only resided in California for part of 2008 and 2009 before they moved back to Canada.

The documents prepared by the department read, “The petitioners were residents of Canada during the tax years in question and cannot be liable to double taxation and are entitled to relief under the U.S.” Contrary to that, those prepared by Pomerantz’s side pointed out that the Justice Department’s documents contained several mistakes, both on the IRS’s information and the calculations made in relation to his bank accounts.

In the midst of the controversy, Pomerantz’s camp maintains that whatever mistake or omission was found in his IRS filings was purely unintentional and would not count as fraud, since he filed everything he knew he had to file to the best of his abilities.

On March 3, the U.S. Justice Department issued the last entry in the court file in Pomerantz’s FBAR case by seeking an order to the serve the complaint on Pomerantz and his lawyer.

Meanwhile, a controversial agreement has reportedly caused the CRA to transfer to the IRS information about Canadian bank accounts. This transfer has been an issue for many Canada-based U.S. citizens under the American tax law, as this could result in the U.S. government pursuing more Canadian residents for failure to file their FBAR reports.

 Should You File an FBAR?

 Pomerantz’s FBAR woes stemmed from his failure to know that considering his status, he was actually required to file an FBAR.

Like Pomerantz, there are many others out there who do not know what an FBAR is, what it is for and who should file it. If you are not sure whether to file it or not, here’s the rule. As per the American tax law, you are required to file an FBAR if you are any of the following:

  • You are a U.S. person who had a signature authority over or financial interest in at least one financial account outside the U.S.
  • At any time during the calendar year, you had foreign financial accounts whose aggregate value exceeded $10,000.

But how do you know if you are a “U.S. person?”

 U.S. Person

 According to the law, you are considered a U.S. person if you are a U.S. citizen, U.S. resident, an entity such as a corporation, partnership, or limited companies created and organized in the U.S. or under U.S. laws, and trusts or estates created under U.S. laws.

The IRS rule also specifies certain exceptions to the FBAR reporting requirements, such as the following:

  • Certain foreign financial accounts jointly owned by spouses
  • S. persons included in a consolidated FBAR
  • Correspondent/Nostro accounts
  • Government-owned foreign financial accounts
  • International financial institution-owned foreign financial accounts
  • S. IRAs owners and beneficiaries
  • Tax-qualified retirement plans beneficiaries and participants
  • Certain individuals with no financial interest in but have signature authority over a foreign financial account
  • Trust beneficiaries who are U.S. persons reporting the financial account on an FBAR filed on behalf of the trust
  • Foreign financial accounts maintained in a U.S. military banking facility

In Pomerantz’s case, he is a U.S.-Canadian citizen who owns a foreign financial account so he is required to file an FBAR.

 How to Report and File Your FBAR

Reporting and filing your FBAR is required regardless of the taxability of your income. The law states that if you hold a foreign financial account, you are obliged to report even when your account produces no taxable income. You meet your reporting obligation by answering questions about tax returns in foreign accounts and by filing an FBAR.

Since the FBAR is considered a calendar year report, you need to do the filing on or before April 15 of the year following the year in question. You need to file electronically through the e-filing system of FinCEN.

Filing FBAR with a Federal Tax Return

In any case, you should not file the FBAR with a federal tax return. Even when the IRS extends the filing period for the income tax return, that does not mean that the period for filing an FBAR is extended as well. The good news though is that the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 has already been passed, granting taxpayers a maximum six-month extension to file their FBARs. So, should you fail to meet the April 15 deadline for FBAR filing, you have until Oct. 15 of each year to file.

 Why You Need to File a Complete and Accurate FBAR

If you want to save yourself from possible civil monetary penalties, make sure that you file your FBAR properly by ensuring its correctness and completeness. FBAR-related penalties depend on whether the violations are willful or non-willful.

For the penalties assessed by the IRS after Aug. 1, 2016 for violations committed after Nov. 2, 2015, the IRS assesses an inflation-adjusted penalty so that it won’t exceed $12,459 per violation for non-willful violations. On the other hand, the inflation-adjusted penalty for willful violations may go above $124,588 per violation.

For violations that occurred on or before Nov. 2, 2015, civil penalties usually do not exceed $10,000 per violation for non-willful violations and greater than $100,000 for willful violations.

 When You Are a U.S. Taxpayer Who Holds Foreign Financial Assets

If you are a taxpayer who has foreign financial assets exceeding certain thresholds, you need to file another form in addition to the FBAR—the Statement of Specified Foreign Financial Assets (Form 8938). You file this form with an income tax return.

 When You Have Offshore Financial Accounts

Today, the Offshore Voluntary Disclosure Program of the IRS allows those who have unreported taxable income from their foreign assets or other offshore financial accounts the chance to fulfill their reporting obligations, and that includes the FBAR. While this program does not have a particular closing date, you need to do your reporting obligations the soonest time possible as the IRS has all the mandate to close this program anytime.

When You are a Non-Resident U.S. Taxpayer Who Failed To File Required U.S. Income Tax Returns

For U.S. taxpayers who don’t reside in the U.S. and have failed to file the required U.S. income tax returns, the IRS implements certain streamlined filing compliance procedures. These procedures are exclusive to non-resident U.S. taxpayers, whose submissions are reviewed on varying degrees, depending on the response of the taxpayer to a risk questionnaire and on the amount of tax due.

In 2014, the IRS expanded these streamlined procedures to certain taxpayers residing in the U.S. The new procedure stipulates that penalties of eligible U.S. taxpayers who are non-residents should be waived, while penalties of eligible U.S. taxpayers who are U.S. residents will include a miscellaneous offshore penalty. This penalty is equivalent to five percent of the foreign financial assets of the taxpayer in question that caused the tax compliance issue.

 When You Failed to File FBAR and Are not Under a Civil/Criminal Investigation by the IRS

If there are streamlined filing compliance procedures in FBAR filing for U.S. taxpayers who are non-residents, there are also procedures that are exclusive to taxpayers who did not file the required FBAR and are not under any criminal investigation by the IRS. If the IRS has not contacted you about a delinquent FBAR, then you need to file any delinquent FBAR through FinCEN’s BSA E-Filing System.

When you enter the system, you need to choose a valid reason for your late filing and enter an explanation using the “Other” option. If your income from your foreign financial accounts are properly reported and you paid your taxes on your U.S. tax return, rest assured that the IRS will not impose any penalty for your failure to file the delinquent FBAR.

For the last handful of years, U.S. taxpayers, residents and non-residents alike, have been grappling with various changes on the IRS’ reporting requirements. Despite these changes, the need for U.S. taxpayers to disclose their foreign assets remains. Criminal and civil penalties as a result of not filing an FBAR have been alarmingly high in the last years and the U.S. government is now more stringent than ever in going after those who fail in this part of the IRS law. So if you don’t want to be in dire straits with the IRS, report when and what you should.

A Detailed Guide for Indian and Foreign Nationals Applying for a PAN Card

Indian nationals who pay their Income Tax have their own Permanent Account Number (PAN). This 10-digit alphanumeric code is assigned by the Central Board of Direct Taxes through the Income Tax Department and is unique for every taxpayer. Basically, it serves as an identity proof to all individuals covered by the Indian Income Tax Act of 1961.

Obtaining a PAN is optional and voluntary, just like passport and driving license. But while it is voluntary, its use is mandatory in almost all high-value financial transactions throughout India. If you are undecided whether to obtain one or not, imagine yourself applying for a driver’s license for motor driving or applying for a passport so you can travel abroad. It is impossible for you to carry out such transactions without a PAN.

In India, applying for a PAN card is necessary because almost all financial transactions–including opening a bank account, buying mutual funds, selling or purchasing assets ababove-identifiedimits, receiving taxable salary or professional fees, and other high-value transactions–require PAN.  This number keeps track of all your monetary transactions and helps prevent you from being charged with tax evasion. Regardless of how many times you change your address while in India, your PAN remains unchanged.

Through time, the PAN has steadily become a mandatory document for many other financial transactions, from the smallest like applying for a new landline telephone or mobile phone connection to the biggest like purchasing and selling properties and purchasing foreign currency. Its general uses include payment of direct taxes, filing of income tax returns, avoiding deduction of tax at higher rates, and entering into specific transactions like the following:

  • Selling or purchasing immovable properties like house, apartment or a piece of land worth 5 lakh rupees and above
  • Selling or purchasing vehicles
  • Paying hotels or restaurants an amount more than 25,000 rupees
  • Paying in cash worth at least 25,000 rupees when traveling in other countries
  • Paying an amount of 50,000 rupees or more when acquiring bonds from the Reserve Bank of India
  • Paying an amount of 50,000 rupees or more when acquiring bonds or debentures from a company or an institution
  • Paying an amount of 50,000 or more when acquiring shares from a company
  • Purchasing mutual funds
  • Depositing 50,000 rupees from any single banking institution in 24 hours
  • Paying for bullion and jewelry worth more than 5 lakh rupees

What is the structure of PAN?

As mentioned, a PAN is an alphanumeric code and therefore consists of both letters and numbers. Its first five characters are letters, the next four are sequential numbers running from 0001 to 9999, and the last character is a letter. Hence, it follows this structure: AAAPL 1234C.

The first three letters of your PAN are a sequence of letters from AAA to ZZZ. However, the fourth letter stands for something else. This character tells which type of card holder you are. It uses letters A to K, which individually stands for:

  • Association of Persons (AOP)
  • Body of Individuals (BOI)
  • Company

F-    Firm

G-   Government

H-   Hindu Undivided Family

L-   Local Authority

J-   Artificial Juridical Person

P-   Individual

T-   AOP (Trust)

K-   Krish (Trust Kish)

The fifth character of your PAN is the first character of your surname, if the PAN card is “Personal” where the fourth character is “P,”  or the first character of the name of the entity, trust, society or organization in the case of company/ HUF/ firm/ AOP/ BOI/ local authority/ artificial juridical person or government, where the fourth character is “C,” “H,” “F,” “A,” “T,” “B,” “L,” J,” and “G.”  The last character is an alphabetic check digit.

The date of issue of the PAN card is indicated at the right-hand side of the card holder’s photo on the PAN card. However, this is only for PAN cards issued by the NSDL. Those issued by UTI-TSL do not indicate the card’s date of issue. The central government of India has also taken strides to introduce an online service, “Know Your PAN,” should you wish to verify or validate either your new or existing PAN number.

Who can apply for a PAN card?

Whether you are employed or unemployed, a plain housewife or someone in a non-financial position, you are free to apply for a PAN card. Practically every Indian national faces no restriction against applying for it and there is no disadvantage to having one. In fact, obtaining a PAN card will help you avoid transactional problems that may arise in the future. Take it this way: When you obtain a driver’s license, it does not necessarily mean that you are required to drive. However, in the event that you need to drive, it is mandatory for you to have a driver’s license.

Now, who are the specific people who can apply for this card? If you belong to any of these two, then you can have your own PAN card:

  • Anyone who earns a taxable income in India.
  • Anyone who manages a retail, service or consultancy business that had total sales or gross receipt of more than 5 lakh rupees in the previous financial year.

What if I am a foreign citizen? Can I apply for a PAN card?

If you are a foreign citizen and you want to run a business or invest in India, you should also apply for a PAN card. Foreign nationals undergo the same procedure as Indian nationals when it comes to obtaining PAN. The only difference is that the application of a foreign citizen should be filled using Form 49AA, which is especially intended for foreign citizens. The completely filled-out form should be submitted to an authorized PAN Service Centre through the foreign applicant’s authorized representative based in India.

Currently, PAN Service Centres are only located in India but foreign PAN applicants can apply online. The online facility allows foreign applicants to pay their fees using their credit card, but only if they have India-based credit cards.

Since PAN is also available to foreign nationals, this document cannot be used as proof of Indian citizenship.

I want to apply for a PAN card. How do I get started?

First, you have to understand that PAN applications are categorized into two:

  1. Application for allotment of PAN- If you have never applied for a PAN before or if you do not have a PAN allotted to you yet, this is for you. You may visit India’s Income Tax Department website to verify whether a PAN has already been assigned to you or not.

Once you have checked it with the ITD and confirmed that you do not have an existing PAN yet, you may proceed with your application process by downloading either of the following forms:

  1. Form 49A- If you are an Indian citizen, whether or not you are currently located in or outside India or Form 49AA- If you are a foreign citizen
  1. Application for new PAN Card or/and Changes or Corrections in PAN data- If you have already obtained a PAN but wish to have a new PAN card, or if you want some corrections applied in your PAN data, you need to submit your application by filling out the “Request for New Pan Card or/and Changes or Correction in PAN Data” form. This form can be used by both Indian nationals and foreign nationals.

I already have the application form. What’s next?

If you have already secured the necessary form/s, follow these steps:

  • Fill in the details on the form. Remember that all the mandatory information should be provided and only one letter should be entered in each box. All fields marked (*) are mandatory. Words should be separated with a blank.
  • Once you have filled out the form and submitted the application successfully, the screen will display a 15-digit unique acknowledgement number. Keep this number as you will need this when you go to the Income Tax department.
  • Aside from the application form, you also need to fill out an acknowledgement form, where you will attach two (2) of your recent photographs with white background. The photos should not be stapled or clipped to the form in any way. Remember that the clarity of the image on your PAN card will greatly depend on the quality of the photo that you will affix to your acknowledgement form. Also, do not forget to cross-sign on the photo on the left side in such a way that a portion of your signature is on the photo and another portion is on the form.

If you are applying for a PAN card on behalf of a company, the one to sign the acknowledgment is the authorized signatory. Make sure to affix the appropriate stamp and seal.

  • As soon as you have accomplished the acknowledgment form, submit it along with the other documents to the NSDL office in Pune within 15 days of the date of your online application. When you send it to the Income Tax department, do not forget to attach a proof of address, proof of identity and the payment receipt. Place all the required documents inside an envelope and write “APPLICATION FOR PAN–ACKNOWLEDGEMENT NUMBER” on the packet.

You can also submit the required documents online through the following websites:



  • To apply for a PAN card, you need to pay a processing fee. If your address is in India, the fee is Rs. 107. If your address is outside India, the amount that you need to pay is Rs. 989. The payment channels are the same whether your address is within our outside India. You can pay via online net banking, check, debit card or demand draft.

Which documents can I use as proof of identity and address?

Proof of Identity:

  1. Copy of passport
  2. Copy of Person of Indian Origin card
  3. Copy of Overseas Citizenship of India card
  4. Copy of Taxpayer Identification Number (TIN)

Proof of Address:

  1. Copy of passport
  2. Copy of Person of Indian Origin card issued by the Indian Government
  3. Copy of Overseas Citizenship of India card issued by the Indian Government
  4. Copy of Taxpayer Identification Number (TIN) or Citizenship Identification Number attested by Apostille or by the Indian Embassy or Consulate in the applicant’s country of origin
  5. Copy of bank account statement from country of residence
  6. Copy of non-resident external bank account statement in India
  7. Copy of residential permit in India issued by the State Policy Authority
  8. Copy of registration certificate issued by the Foreigner’s Registration Office bearing the applicant’s Indian address
  9. Copy of granted visa/ appointment letter/ contract from Indian company and original certificate of Indian Address issued by the employer

Can I have multiple PANs?

If you have already been assigned your 10-digit alphanumeric PAN, do not apply for a new number as that is illegal. If you have lost your card, you can apply for a new one given that you will use the same PAN number. Should there be a need for some corrections on your existing PAN card, you can always request for a new one by paying the required fee.

How will I know the status of my application?

It usually takes 10 to 15 days to receive a PAN card from the day of application. However, the process is shorter when the application is made online. If you applied through the Internet and paid your fee through a credit card, you can get your card after five (5) days.

If you want to check the status of your PAN card application, you can visit the NSDL website three (3) days after filing your application. You are required to give your acknowledgment no. or your name and date of birth in the portal before you can view the status of your application. Go to this link to track your application status online:


You can also check your application status by typing NSDL PAN followed by your 15-digit acknowledgement number and sending it to 57575.

How To Bring Money from India to the US ?

Many American Indians, non-resident Indians (NRIs) and persons of Indian origin (PIOs) have immovable assets like a house that they have left behind in their country. They may also have inherited assets like house or money from their dearly departed.  Most of the time, these people plan to liquidate these assets and bring them to the US. This is particularly true if they don’t have plans of going back to India, or they rarely visit their motherland.

American Indians, non-resident Indians (NRIs) and persons of Indian origin (PIOs) who want to bring money from India to the United States will have different processes to go through.

The processes may depend on the method by which the money was acquired, like selling a property in India, getting an inheritance, or investing in financial instruments. This article will look at the different ways of bringing money from India to the United States.

Selling of property

Any NRI can sell a commercial or residential property in India to another NRI, PIO, or a person who resides in the said country. But NRIs cannot sell agricultural land or farmhouse to another NRI, as they are only allowed to do so to an Indian citizen who also resides in the Asian country.

NRIs are also allowed to repatriate or bring money from India from the sale of a maximum of two residential properties.

Sale proceeds should be credited to a non-resident ordinary (NRO) account. This is a savings account where the NRI or PIO can maintain and manage their income earned in India like dividends, pension, and rent, among others.

If the property was sold at least three years after the date of purchase, the individual will be levied a long-term capital gains tax of 20 percent. This is calculated by subtracting the sale value from the indexed cost of purchase, or the cost of purchase as adjusted for inflation.

NRIs are allowed to repatriate or bring their sale proceeds of property sold in India to the US. However, the limit to the amount brought from India is $1 million per calendar year, including all other capital account transactions. NRIs, though, can petition to the RBI for an increase in the repatriation limit as long as they can prove that there is a genuine need for it.

However, NRIs who were able to purchase a property in India while they were still a non-resident can still repatriate the proceeds from the sale. But they should have bought the property in accordance with foreign exchange laws during the time of the purchase.

The amount to be transferred must also not be more than the amount remitted through a foreign exchange to India through banking channels. If the NRI purchased the property using funds in a Foreign Currency NonResident account, then the repatriated amount or proceed from the sale must not be more than the amount paid through the said account.  Also, if the NRI purchased the property via a home loan, then the amount to be brought from India should not be more than the amount of loan repayment.

To bring the proceeds of the sale of property from India to another country, NRIs or POIs should course it through legal banking channels. This would give them the peace of mind knowing that their money will be safe.  NRIs are cautioned against relying on private money transfer or “Hawala” as this is considered illegal. There’s a risk that they may not get their money out of India if they opt for the said process.

To begin the transfer of money from India to the US, the NRI should get a certificate from a chartered accountant (CA) in India.  The CA will issue a certificate information or “Form 15CB” which is also downloadable from the Indian government tax website. This is the link to the download page.

The form is basically a certificate that the money to be sent abroad has been acquired from legal means like the sale of a property. It also vouches that all taxes due have been paid. The CA must fill in the form and sign it.

Once the Form 15CB has been completed, the NRI must fill another form called Form 15CA.  This is a form that is to be filed online with the Indian tax department. It can be downloaded from this link. Some of the information needed in Form 15CA can be found on Form 15CB.

The form is to be submitted online, with the NRI receiving a system-generated acknowledgement receipt or number. The filled form 15CA along with the acknowledgement number must be printed out and signed.

Then the NRI will have to bring the signed undertaking along with the CA certificate on Form 15CB to the bank where he/she has an NRO account.

Aside from Forms 15CA and 15CB (in duplicate copy signed by the CA), the bank will also request the NRI to fill up Form A2 as well as an application for foreign exchange form. The latter is used to vouch that the person who will be sending the money to another country did acquire the money through legal means; in this case through the selling of a property.

Some banks may also require the NRI to provide documents like a copy of the sale document of the property. If the NRI inherited the property, then he will have to present a copy of the will, death certificate of the original owner of the property, and legal heir certificate.

The bank will then process the transfer of the money abroad.

Getting an Inheritance or Gift

In India, the property inherited is fully exempted from gift tax. However, the amount on the sale of the asset is taxable under capital gains. Calculation of capital gains from an inherited property is the sales proceed less the original cost of purchase of the bequeathor.

It may be short term or long term, depending much on the period for which the property or asset was held.

In the US, there is an inheritance or estate tax levied at the time of inheritance. But this is only levied if the bequeathor or the deceased individual was a US citizen, resident, or Green Card holder.

NRIs, PIOs, or American Indians will have to  report the money that they are bringing in to the US from India. They are to do this by filing Form 3520, an information return and not a tax return. There are significant penalties awaiting those who cannot file the said information return.

Form 3520 is an annual return to report transactions with foreign trusts and receipt of certain foreign gifts. It can be downloaded from here.It must be filed along with the tax return of the NRI, PIO, or American Indians who inherit a property in India. This not only applies to property but also other financial assets such as cash and investments.

There are two reasons why Form 3520 has to be filed by those who want to bring money from India to the US. One is that it proves a trail of the individual’s receipts. For example, an American India who inherited $100,000 or more and wishes to repatriate that amount to his US bank account will be able to establish the source of that money by filing Form 3520. The same goes for an NRI who sold a property in New Delhi and wants to transfer the proceeds to his US bank account.

It also establishes the basis of the inheritance of the individual. The basis here pertains to the fair market value of the inheritance during the death of the person who bequeathed the property to the individual filing the Form.

The IRS requires filing of Form 3520 during cases wherein the individual receives an inheritance of $100,000 or more. But tax experts suggest report inheritance even if the value is lower than $100,000 because it can establish a trail of receipts.

If the individual received separate gifts from related parties, the amount should be aggregated. For instance, the individual received $70,000 from an uncle in India and another $50,000 from another aunt. Because the aggregate amount of the cash gifts is $120,000, then he or should file the Form. This must be particularly reported in Part IV of the said form.

The due date for filing the Form 3520 is the same as the due date for annual income tax return filling.

There is another form that American Indians have to file if they inherited financial assets in India and wish to bring those assets to the US.

Form 8938 is a requirement for all US residents, citizens, and Green Card holders to report foreign financial assets like bank balances, mutual funds, shares of stocks, government securities, and others if the aggregate of these assets is more than $50,000 for single taxpayers, and $100,000 for couples.

Investments in Financial Instruments

 Another way for NRIs or PIOs to bring money from India to the US is to invest in financial instruments like debt investment and equity investment.

For debt instrument investment, NRIs and PIOs can invest in a non-resident ordinary (NRO) fixed deposit or a non-resident external (NRE) fixed deposit. Many NRIs and PIOs are attracted to these financial instruments, what with the relatively high rates of 8-9 percent.

American Indians can remit proceeds from their NRE accounts freely or without the cap. But for NRO accounts, they are limited to a ceiling of $1 million in a year.

Also, the interest earned in NRE accounts is not to be levied with tax. On the other hand, interest earned in NRO accounts is subject to tax.

Other financial instruments that NRIs can invest in are foreign currency non-resident or FCNR deposits where the investment is in dollar, yen, and the euro. These are term deposit with the interest dependent on the LIBOR rate for the particular currency. Interest income from FNCR deposits is not levied with tax.

However, NRIs are not allowed to invest in the Public Provident Fund and National Savings Certificates debt instruments issued by post offices.

For equity investment, NRIS can invest in direct equities or equity mutual funds.

Whenever interest or proceeds of financial instrument investments is remitted or repatriated by an NRI, he or she has to submit Form 15CA at the Indian income tax department’s website.

Most of the time, a certificate coming from a chartered accountant as provided in Form 15CB is also needed before the NRI can upload Form 15CA online. In Form 15CB the CA vouches for the details of the payment, Tax Deduction at Source (TDS) rate and TDS deduction, as well as other details of the remittance.

This certificate is very important because banks won’t remit the money until this certificate has been provided.

But Form15CB won’t need to be filed when a single remittance is less than 50,000 rupees, and the total remittance in the year is not more than 250,000 rupees. In this case, the individual only has to file Form 15CA.  Exemptions to Form 15CB filing also include deduction of lower TDS, as well as the receipt of a certificate from the assessing officer under section 197.

Also, any remittance of funds to an NRI will require the remitter to present a certificate from a chartered accountant that Form 15CB ad Form 15CA have been filed at the Indian tax department’s website.

Finance Bill 2015 imposed this requirement starting June 1, 2015, stating that all forms have to be filed for all remittances whether it is taxable or non-taxable. Central Board of Direct Taxes had earlier required the said forms to be filed for taxable transfers, while most banks asked for said forms even for non-taxable transfers.

While repatriation of funds from India to the US is not as complicated as it appears to be, it would still be recommended that NRIs, PIOs, or American Indians work with a chartered accountant in India and a professional CPA familiar with Indian laws in the United States. The professional can counsel them in the intricacies of the Indian tax code, particularly those that affect their assets that they would want to be repatriated to another country.  The CA can also help in the filing of appropriate forms as required by the IRS for people who will be bringing their assets from India to the United States.   Our office specialize in these kinds of cases, so feel free to contact us with any questions.

2014 Wealth Summit Pictures

Here are some pictures from the 2014 Wealth Summit. We would like to thank everyone who joined us for this one day event. I hope you liked the food and got lots of good information to plan your 2015 financials and end the year 2014 with big bang.

Evaluate the repercussions of non disclosure and make a speedy effort and comply with the tax through SFOP

Every individual or a small concern or a big company has to comply with the financial obligation of filing the tax due to the government. Any institution can hope to flourish only if they act in consonance with their duty as a responsible citizen of a country/state, which has allowed them to function on their soil, to do business with their people and earn well. Tax procedures have been updated as per the requirements of the times and now the new IRA has come into force there is more trouble for people who willfully default on tax payments.

The government has introduced the streamlined domestic offshore procedure (SDOP) and the streamlined foreign offshore procedures (SFOP) to bring into the net of tax all those people who has not fulfilled the responsibility of tax payment for a period of time. The term ‘willfulness’ has assumed importance in that there is a chance of opting for SDOP or SFOP if the error in not filing is not due to willfulness in not reporting the asset or earnings through foreign assets. With the dictum ‘better late than never’ all citizens who have a stake in the country as citizens either with assets or earnings held within the country or outside, are duty bound to pay all the taxes due for all the missed years even if it involves penalties of 5% as given. In fact SDOP and SFOP have the procedures to soften the impact of the repercussions of negligence.

FBAR is the reporting of the Foreign Bank Account Reporting. Many Americans are earning in different areas both within the country and outside, the result is they have accounts in banks wherever they run their business outside the country. The government has brought in the provision of FBAR to show that all citizens who have been earning through these in the form of bonds and assets and business earnings should report the same and comply with the tax as per value. In fact just by compliance with tax regulation whether with stakes within the country or outside it is possible to use our time for genuine business instead of watering down the progress through non disclosures of earnings. The following are considered as foreign assets:

  1. Financial accounts in foreign institutions
  2. Financial accounts of a US institution in a foreign country
  3. Foreign stocks and securities
  4. Foreign mutual funds
  5. Private equity funds or hedge funds of foreign countries

Depending on which of these categories a person falls in he has to take the time to evaluate the repercussions of non disclosure and make a speedy effort and comply with the tax through SFOP and for this make it a point to meet the tax consultant.

The tax liabilities for business ventures in the USA

Business ventures can thrive in the land of promise (USA) reasonably well provided they do not default on their obligation of tax towards the federal government. Business that employes people is responsible not only towards what they pay for their employees in addition they have to take responsibility for the society for its social welfare schemes, the healthcare of the elderly in the society and also the medical facilities for their own employees. By means of tax reduction at source of the pay of the employees, the employers withhold certain percentage in the pay-roll amount. This income is taxable and there are cases where proper reporting has not been there. To avoid having to face hassles in the form of the IRS (internal revenue service), stringent measures and punishment; employers are required to comply with the pay-roll taxes.

Some employers instead of remitting the pay-roll taxes use that amount for funding their companies’ requirement or for rotation of funds as a quick fix measures to address the shortage of cash. This may be due to the high rent and business not up to the expectations. This willful non compliance in the long run leads to a heavy damage for non disclosure and willful abetment of tax law. Criminal proceedings may also be instigated for such offenses.

It is mandatory for employers to withhold a certain amount from the employees and submit the details to the IRS and based on this the pay-roll taxes are computed. They are obliged to submit the details of their employees and their pay-roll periodically. Employers are required to file the reports of the payroll on a quarterly basis in the states and annually to the federal government. Failure to remit the pay roll tax will invite a penalty or 2 -10%. The IRS is a long handed arm of the government which can punish both the employee and employer when they discover the default in pay roll taxes.

Just as the FBAR is the long handed arm to check the proliferation of unaccounted money in foreign banks similarly the IRS is the arm working with the country.

Any business whether small or big should work in tandem with the government authorities to iron out their differences and if in case of appeal they can always take it to the office of appeal for reversal. The ways in which tax evasion can happen are

    • Omission and understatement of income
    • Improper deduction and fictitious deductions
    • False information of employees
    • Improper allocation of income

Any responsible business venture should approach a tax consultant and see to it that their business does not undergo stress with tax evasions and non-reporting. Know all the details of tax law! Become the master of your own business with the right input of running the business, with the proper input of managing the business- coupled with proper reporting to the tax authorities and be a good employer who inspires the employees to remain steadfast and innovate in their field.

The Historic US Indictment of The Swiss Wegelin Bank Lays The Foundation For Additional Cases

Wegelin and Co. was the oldest private bank in Switzerland but they were unable to escape US indictment. They became the first non-US bank to be indicted by the US government because they facilitated tax evasion by US taxpayers. They were accused of conspiring to hide $1.2 billion dollars from the US Internal Revenue Service.

A key to the case was a Wegelin correspondent account held in Connecticut at a UBS branch. These correspondent accounts are held by banks at another bank to handle the financial intuitions transactions with each other. The United States Justice Dept. alleged that the account held by Wegelin did not have that legitimate purpose.

Although Wegelin did not have a physical location in the US, it used their UBS account so their United States customers could access their Swiss held funds. The Wegelin indictment alleged that millions flowed through the account to US citizens who were evading taxes. A default was entered against Wegelin and they were ordered to forfeit $16.2 million from the correspondent account.

Only days before the indictment was returned, the bank was dissolved by the owners. Their operations and assets were sold to the Raiffesein Bank in Switzerland. Wegelin now only exists to finalize United States relationships with clients and to negotiate with the United States Justice Department. The correspondent account is alleged to be used by 2 or more other Swiss banks for the same purpose.

This indictment was ground-breaking for the United States. Since this case, the United States has begun to intensify the legal pressure they put on financial institutions in Switzerland. The Swiss and the Americans have not been able to reach an agreement on the disclosure of US account holders.
Wegelin is said to have recruited US clients that were leaving UBS in 2008 when there was news of tax fraud at USB. Wegelin saw this as a great business opportunity. Managers were instructed to approach customers and tell them about an alternative that was safe for tax evaders.

In late 2011, Wegelin did not take any more new customers from the US but it was too late by then to avoid the Justice Department’s scrutiny. Their illegal conduct became apparent when the IRS put forth the Offshore Voluntary Disclosure Initiative.

The smaller banks in Switzerland are still not affected by United States enforcement efforts. However, the United States can target any Swiss banks with correspondent accounts in the US. There are many jurisdictional issues that still have to be answered.