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IRS Extends Amnesty Program

auditThe IRS is extending the deadline for international tax dodgers to apply for an amnesty program.  To date more than 3,000 Americans hiding assets overseas have applied for the program.  The program offers no jail time and reduced penalties for tax cheats who come forward.

The Internal Revenue Service is expected to announce that the program will be extended until Oct. 15.  The IRS has a long standing policy that permits tax evaders who come forward before they are contacted by the agency will usually avoid jail time.  Provided that they agree to pay back taxes, interest and hefty penalties.  Drug dealers and money launderers are exempted from this policy but if the money was earned legally, tax evaders can avoid criminal prosecution.  Approximately 100 people apply for the program in a typical year because the penalties can far exceed the value of the hidden account.

In March, the IRS began a six-month amnesty program that sweetened the offer with reduced penalties for people with undeclared assets.  The amnesty program is part of a larger effort by federal authorities to crack down on international tax evaders.  In August, the U.S. and Switzerland resolved a court case in which Swiss banking giant UBS agreed to turn over details on 4,450 accounts suspected of holding undeclared assets from American customers.

The process of turning over that information is expected to take several months. But once the IRS obtains information about international tax dodgers, they will be ineligible for the amnesty program.  Publicity from the UBS case, even before the agreement was announced, had many wealthy Americans with offshore accounts nervously running to their tax advisers.   Lawyers and advisers from several firms have said they were swamped with calls from people hiding assets overseas.  attorneys are advising their clients to take advantage of the IRS Amnesty program and to contact the IRS before they contact you.

Hedge funds and other investment partnerships need to enhance risk management practices to mitigate rising tax risk.  Sum2 publishes the IRS Audit Risk Program  (IARP) to assist investment partnerships and corporate entities  that utilize offshore SIVs to assess audit tax risk factors and take steps to manage this significant business threat.  The IRS has developed an audit risk profile that guides field examiners through an assessment of an investment partnerships tax audit risk factors.  The IARP helps tax managers assess threats and more effectively prepare and manage tax  audit risk exposures within the focus of IRS examiners.

Risk: audit, tax, regulatory, compliance, reputation

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September 21, 2009 Posted by | CPA, hedge funds, IARP, private equity, Sum2, Uncategorized | , , , , , , , | Leave a comment

The Tax Man Cometh

taxmanThe IRS has reached agreement with UBS over disclosure of the identity of US citizens holding private bank accounts with the firm in Switzerland.  The agreement calls for UBS to release the names of 4,450 clients who are suspected of using the bank to hide assets and avoid taxation.   UBS has private banking relationships with with over 52,000 US citizens with assets approximating $15 billion.

Private banking is an important pillar of the Suisse economy.  This action may pose a significant threat to the Suisee banking industry.   Compliance with the IRS request for the names of private bank account holders  damages the venerated wall of secrecy Suisse banks employ to attract assets and clientele.  Other EU banking centers like Luxembourg and Liechtenstein may also feel pressure to comply with news standards of transparency and disclosure.  This may have the effect of driving investors to seek more exotic havens to park assets.  Offshore domiciles in the  Indian Ocean, Southeast Asia and Latin America may benefit from this action.  It may also add to the risk of investors seeking safe havens for their assets.

For US taxpayers, the resolution signifies that the IRS is serious about its intention to ramp up enforcement of the tax code.  The IRS has enhanced its focus on US citizens and corporations utilizing foreign banks and offshore investment vehicles.  The agency is concerned that investment products and financial services offered by foreign banks have enabled US citizens and corporations to avoid tax liabilities.  Products such as credit cards, hedge funds and other investment partnerships are coming under the exacting microscope of the IRS.

The IRS is under pressure to enforce compliance with federal tax statutes.  The US Treasury coffers are seriously depleted given all the stimulus and economic recovery expenditures.  The IRS is mandated to assure that compliance is adhered to so taxpayers pay taxes on all legal capital gains and income.  As this blog reported, the IRS has developed an Industry Focus Issue, (IFI) audit strategy that  profiles investment partnerships and other corporations that use offshore domiciles to harbor assets.  IFI guides field audit personnel through a risk based assessment of investment partnerships.  The IFI aggregates and ranks  Three Tiers of high risk tax compliance issues.  Examiners will conduct rigorous reviews of these issue sensitive factors.  Many of the factors concern the recognition of income and assets in custody outside of the US and repatriation of revenue derived in foreign domiciles.

Sum2 has published a product, IRS Audit Risk Program (IARP) that guides corporate tax managers and tax professionals through a risk assessment of their exposure to IFI risk factors.  The IARP is a strategic tool that corporate tax professionals utilize to score risk exposures, determine mitigation actions, estimate remediation expenses and manage tax controversy defense strategies.  The IARP is available for purchase on Amazon.com.

The IRS action against UBS is the opening salvo in the new era of enhanced compliance.  UBS is a marquee brand that indicates that the IRS is serious about compliance. As a result of the UBS settlement other Suisse banks are coming forward to make voluntary disclosures about US citizens suspected of tax-evasion.  Those bank  include, Credit Suisse, Julius Baer Holding, Zurcher Kantonalbank and Union Bancaire Privee.  UBS has  previously turned over approximately 250 names to the IRS.  It is believed that the IRS has issued indictments to 150 people from that list of names.

This high profiled action against UBS has helped to publicize the IRS amnesty program that expires September 23rd.  In an effort to encourage Americans to voluntarily disclose information about  accounts they illegally withheld, the IRS created an amnesty program. Under the amnesty program, any taxpayer who successfully completes the requirements will not be criminally prosecuted for their acts.  More details on the IRS amnesty program can be found here on the FIND LAW website.

Risk: tax, reputation, compliance,


August 21, 2009 Posted by | compliance, CTA, hedge funds, IARP, IRS, regulatory, reputational risk, Tax, Uncategorized | , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment