Swiss branches of two Israeli banks have been indicted by the U.S. Department of Justice for allegedly helping Americans conceal their offshore assets. The indictment, filed June 14 with the U.S. District Court in California, centers on United Revenue Services, Inc. (URS), a California and Nevada-based tax preparation firm.
The company is headed by dual Israeli-U.S. citizens father and son David and Nadav Kalai, who were also charged along with their Israeli employee, David Almog, with assisting clients to open offshore shell entities with accounts at Swiss branches of Israeli banks. In one instance, a case also involved an account at an Israeli bank whose branch was located in Tel Aviv.
The issue involves the failure to file an FBAR ("Foreign Bank Account Report") form with the U.S. Internal Revenue Service (IRS) for annual tax returns. The FBAR lists the monies held in foreign bank accounts owned by American citizens.
The probe, which began with audits of individual U.S. taxpayers, eventually shifted to intermediaries.
Enforcement actions were then initiated against URS and Credit Suisse, ultimately forcing the two to reveal the identities of thousands of U.S. account holders to the United States government.
"Bank A was a large financial institution headquartered in Tel-Aviv, Israel. Bank A currently describes itself as maintaining a 'premier position in the world of international private banking' with private bankers who will be a customer's 'loyal and discreet consultant.'
"Bank A currently advertises that it has 'more than 336 branches and representations across 18 countries worldwide,' including banking operations in Luxembourg (“hereinafter 'Bank A Luxembourg”).”
The indictment goes on to list the second bank headquartered in Tel-Aviv, Israel, also unnamed. "Bank B offered private banking services it currently describes as being tailored to a customer's 'preferred communications channels and information' while 'maintaining total discretion.' Bank B advertises a 'worldwide presence on four continents through subsidiaries, brances, and representative offices,' including a branch of its Swiss banking operations located in Luxembourg (hereinafter 'Bank B Switzerland-Luxembourg Branch').”
U.S. citizens, resident aliens and legal permanent residents (people with 'green cards') are required to file an individual income tax return with the IRS reporting their worldwide income for year year, if their gross income exceeds a certain amount. The IRS requires on Form 1040, Schedule B, Part III, Line 7a, explains the indictment, that every taxpayer answer the following question by checking 'yes' or 'no': 'At any time during [the calendar year] dud you have an interest in or a signature or other authority over a financial account in a foreign country.... ?” If yes, further information is required.
Some of the records date back as far as 2001, and unreported income amounts are as low as $483 in one case. A number of firms are named together with unindicted co-conspirators whose initials only are noted. Among the companies named as having been involved in filing false tax returns are Antelope Int'l Ltd., in Belize, Quattro International Consulting, Falcon Corporate Holdings, Ltd., in the Cayman Islands, PFL Management, Inc., Arcos Iris Investments, Inc. in Belize, Platinum Partners I, and others.
"U.S. residents with an aggregate of $10,000 in any foreign account in one particular calendar year must fill out a Department of Treasury Foreign Bank and Financial Accounts Report, (FBAR) form TD F 90-22.1, due by June 30 of the following year,” the indictment reminds.
Alert for Americans Living in Israel
This is particularly relevant to Americans living in the State of Israel at present, because over the past year, a new initiative has been launched which the IRS has calls the 'Erroneous Refund Credit Project.' Thousands of American citizens who filed legitimate, correct tax returns from Israel discovered this year they are under investigation and are being audited by the IRS for fiscal years 2009 and 2010.
According to an IRS source who requested anonymity because he was not authorized to speak with media, there are three “red flags” that at present are "almost automatically" triggering an audit of tax returns filed by Americans living in Israel:
1. the family for some reason is exempt from paying taxes in the US
2. the family is eligible to receive a refundable tax credit, such as the child tax credit
3. the family is not living in the United States (and is residing in Israel).
Unstated, but under particular scrutiny are joint returns that are filed, particularly those listing numerous children, the source said. “We have found a number of those who claim children that actually do not exist, or who are not legitimately American citizens,” he said.
Audit forms, and the lists of documents demanded in order to prove one's compliance with U.S. government laws, are pages long and can include details such as listing one's whereabouts during every single trip abroad, literally hour by hour, and the income -- if any -- derived during those times and the source from which it came.
The IRS audit demands can be daunting, but the consequences of not complying with them even more so. Such audits can be ameliorated, but individual cases must be addressed each in different ways. Readers are strongly advised to consult your personal tax accountant and if audited, to also contact the individual IRS tax auditor listed on the form.