Saturday, May 02, 2009

Did you report that foreign bank account?

U.S. citizens, as well as non-US citizens with a green card, must file additional paperwork when opening an account offshore.




What Foreign Bank Account?

By Michael B. Nelson, Esq.
Dear Valued Reader,

In 1976 I began my career in international taxation with the accounting firm Price Waterhouse & Co, (now PricewaterhouseCoopers). The New York office hired me to work in their London, England office assisting Americans living and working overseas with their tax structures, tax returns and tax compliance. This was the first time I was exposed to the requirement of Americans to file Federal Form 90-22.1 and in a coordinated checking of one or both boxes on the bottom of Schedule B of the U.S. Income Tax Return, Form 1040. That was over 30 years ago, and you may be surprised at the state of the tax law then which has become even more intrusive in your private and business dealings as well as a continual erosion of the sacred Attorney Client Privilege as it pertains to the U.S. Treasury.

I want to briefly go over a tax controversy that began about the time I moved to London. This controversy will have a chilling effect if you think your tax planning and structures will withstand the mere non-filing of a government informational form; 90-22.1, and "forgetting" to check one or both boxes at the bottom of Schedule B of form 1040.

In 1974 an American businessman, David Sturman and his brother Reuben, who, with others, were utilizing foreign bank accounts in their business. However, they did not file their 90-22.1 or indicate foreign bank accounts or authority on Schedule B. Sturman was subsequently charged with attempted tax evasion, filing false tax returns, willfully failing to maintain records and file reports, and endeavoring to obstruct justice. After years of appeals, Sturman was sentenced to 10 years imprisonment, fined $2.5 million, and ordered to pay prosecution costs. The other defendants were sentenced to shorter terms and fined lesser amounts. They had used both foreign and domestic corporations to transfer money to "conceal…money" and "avoid taxes" according to the testimony of friends, the other named defendants.

Sturman's 1978-82 tax returns that were filed contained numerous false statements and inaccuracies as well as a failure to report his ownership in the domestic and foreign corporations or his signature authority over foreign bank accounts. The court went further and found that he was guilty of willfulness, now a criminal offense, since the tax return Schedule B refers you to a booklet that further outlines your responsibilities for reporting foreign bank transactions. The court concluded that this was a reasonable assumption and, therefore, sufficient to establish willfulness on the part of Sturman.

The U.S. Treasury had taken depositions of four Swiss bank officials in Switzerland prior to the trial that was presided over by a Swiss magistrate. These witnesses' depositions were read into the court's record even at the vigorous objections of Sturman's counsel that Switzerland's strict banking secrecy laws provided a reasonable expectation of privacy protected by the fourth amendment. In support of his assertion of an expectation of privacy, he relied on the Swiss penalties of imprisonment or fine for revealing information and on the Treaty's goal of preserving the integrity of Swiss banking law. However, no such right of privacy in banking records is recognized in the United States, see United States v. Miller, 425 U.S. 435, 96 S.Ct. 1619, 48 L.Ed.2d 71 (1976).

Reuben Sturman, the co-defendant's brother, was also under similar asserted crimes by the U.S. Treasury and his legal counsel too filed an array of objections. The Supreme Court, see United States v. Sullivan, 274 U.S. 259, 260, 47 S.Ct. 607, 607, 71 L.Ed. 1037 (1927), implied that any objections will be considered only if the individual files a completed return and raises the objections in the tax return. Since Reuben failed to file a complete tax return, i.e.….not completing Schedule B of his tax return, the court would not consider his objection. The court went on to state that the definition of willfulness to defeat and evade tax is directly related to a willful failure to file a complete tax return.

Knowing that the United States Supreme Court had decided such a case as I note above in 1982 and the vast array of new harsher legislation that has passed since, you really need to take another serious look at your tax planning and structure compliance. If you just assumed that your choice of jurisdiction will protect you from the U.S. Treasury, you need not look to the recent USB case decided February 19, 2009, the foundation for this case was already decided 27 years ago.

I am a strong advocate of privacy, confidentiality, arranging your business affairs to minimize tax, and protect your assets. However, I am equally strong in my advocacy to file and comply with the laws that you are subject to as U.S. citizens, Green Card Holders and foreigners doing business within the United States. I would like to explore what your options may be if you discover that you do have filing and compliance obligations that are now delinquent.

Michael B. Nelson, Esq


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