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United States v. Paul Manafort and Robert Gates: An Offshore Tax Evasion Case

Kunal Patel

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United States v. Paul Manafort and Robert Gates: An Offshore Tax Evasion Case

On October 27, 2017, the Government filed criminal charges against former Trump aides, Paul J. Manafort and Richard W. Gates, III. While these are only allegations and all defendants should be considered innocent until otherwise proven, the case provides some important lessons in offshore compliance cases. I expect that many with undisclosed offshore assets will be unnerved by this case, but hopefully by understanding the particular facts in this case, such individuals won’t jump to conclusions about the best way to proceed in their situation.

There are a number of federal charges in the case, so I will try to discuss only the facts as they relate to offshore tax non-compliance.

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IRS Audits of Streamlined Applications

Kunal Patel

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IRS Audits of Streamlined Applications

A question that’s asked by every client in a streamlined compliance filing is: “will I get audited?” This article will hopefully shed some light.

Here’s what the IRS says:

Returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U. S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources.

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Foreign Life Insurance Taxation

Kunal Patel

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Foreign Life Insurance Taxation

Life insurance can be good way to ensure that loved ones are taken care of in the event of an unfortunate situation. However, owning a foreign life insurance policy with cash value can prove to be more of a headache than it’s worth. We’ve come across such types of investments regularly in our offshore compliance cases; the reporting and tax obligations can be burdensome. Hopefully, this article will help foreign insurance policy owners understand their U.S. tax obligations.

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OVDP Lawyers & Fees

Kunal Patel

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How much does a Streamlined Case Cost?

Fixed fees. Some attorneys charge fixed fees. The tax laws regarding foreign accounts reporting are onerous. In addition, since there are seemingly unlimited types foreign investments, it takes time to review and understand your policy/investment to determine the correct tax treatment.

If you have investments in foreign life insurance, mutual funds, or stocks, your fees will be higher. Foreign mutual funds and stocks might qualify as passive foreign investment companies (“PFICs”). These are time-consuming to correctly report.

Hourly. For attorneys who use the hourly billing model, usually the tax preparation work will be fixed and the attorney’s time will be billed hourly. The tax preparation work might be done by a different firm. The hourly fee is not so much as important as what the total fees will be (a lesser experienced attorney might bill at $200/hr and spend 10 hours, whereas an experienced one billing at $400/hr might spend 5 hours). You should request that your attorney provide a range of what he expects your total costs to be.

Do you Need OVDP or Streamlined?

The Offshore Voluntary Disclosure Program (OVDP) is for taxpayers who need protection from criminal prosecution or civil willfulness penalties. Read more about OVDP vs. Streamlined. The following factors (not exclusive) are some indicators of willfulness.

  1. Opening an account in a jurisdiction in which the taxpayer has no other ties. Do you have legitimate business or personal ties to the jurisdiction where your foreign assets are located? Or are they located in offshore tax havens such as Switzerland, Panama, Cyprus, Liechtenstein, Luxembourg, Austria, and others where there have (or had) bank secrecy?
  2. A consistent pattern of under-reporting large amounts of income
  3. Use of bank accounts held under fictitious names
  4. Setting up foreign trusts or corporations to conceal sources of income
  5. Selectively filing some forms but not others
  6. Using different passports
  7. Requesting your bank to not send statements
  8. Using code words
  9. Only making cash deposits and withdrawals, and visiting the bank in person
  10. Opening an account in a jurisdiction in which the taxpayer has no other ties
  11. Receiving letters from the foreign bank regarding reporting requirements
  12. Failure to supply an accountant with accurate and complete information
  13. Keeping a double set of books
  14. Hiding, destroying, throwing away, or “losing” books and records
  15. Placing property or a business in the name of another (nominees)
  16. Use of bank accounts held under fictitious names

Deciding between OVDP and the streamlined filing compliance procedures is sometimes a difficult judgment call. Often one or more of the above factors are present in a case, but that does not necessarily make a client willful. The decision to enter the OVDP should not be made lightly. Not only are you conceding wilfulness, but you are making a huge commitment in terms of penalties and professional fees.

Do I Need a Tax Lawyer, or can I use a CPA?

While certain communications with a CPA retained by an attorney are privileged through the use of a Kovel Letter, a client should not directly reach out to a CPA in a legal matter where they may be facing civil or criminal penalties for a tax violation.

Can we just Forget about my past Non-Compliance and file Correctly Going Forward?

Our job is to bring clients into compliance safely and will not advise or assist you in your strategy of “going forward compliance.”

Client Tips

  1. Be Upfront During your Initial Consultation. This means truthfully and completely answering all questions, and proffering relevant information. It is important to identify any weaknesses so that they may be addressed early on, as well as to identify the full scope of the work involved.
  2. Be Organized. If you’re paying hourly, then obviously good organization on your part will save you money. If your attorney is charging a fixed fee and does not sense that you are organized, you can expect that your fees might be higher to reflect the additional time commitment on the attorney’s part.

Why hire us?

Kunal Patel, partner at Mitchell & Patel LLC, comes from a diverse background that includes IRS, Big 4 public accounting, and legal experience. He focuses almost exclusively in offshore compliance matters and has successfully brought numerous taxpayers into compliance with with U.S. tax laws concerning offshore accounts and income. All of our disclosures have been accepted by the IRS.

We take offshore voluntary disclosures seriously and want clients to safely and strategically come into compliance.

Choosing a tax professional solely based on cost is not advisable and can leave you incurring additional legal fees later on. At the same time, if costs seem unreasonably high, you may consider getting another fee estimate.

We assist taxpayers who have undisclosed foreign financial assets. Schedule a consultation to see how we can help.