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The FACTA Provisions of the HIRE Act (P.L. No. 111-147) - Part 2

Posted by attorney Richard Luthmann

4.Withholdable Payments to Non-Financial Foreign Entities under New Code § 1472

General Rule: A withholding agent must deduct and withhold a 30% tax from any withholdable payment to any entity -- other than a financial institution -- that is not a US person (a “non-financial foreign entity" or “NFFE") under the following circumstances:

• The beneficial owner of the payment is that NFFE or any other NFFE;

• The beneficial owner or other payee NFFE does not provide either (i) a certification that the beneficial owner does not have any substantial United States owners, or (ii) the name, address and tax identification number of each substantial United States owner of the beneficial owner; and

• The withholding agent knows or has reason to know that the information provided is incorrect, and the withholding agent fails to report that information to the IRS.

Exemptions and Exceptions:

In general, this provision will not apply to either of the following:

• Any payment of which the beneficial owner is

-- a corporation whose stock is regularly traded on an established securities market (or a corporation that is a member of the same expanded affiliated group as such a corporation);

-- an entity organized under the laws of a United States possession and wholly owned by one or more of its bona fide residents;

-- a foreign government;

-- an international organization;

-- a foreign central bank of issue; or

-- any other class of persons identified by the Secretary as posing a low risk of tax evasion.

• Any class of payments identified by the Secretary as posing a low risk of tax evasion.

5.Why is this law change important?

The FACTA Provisions of the HIRE Act effectively means the end of Bank Secrecy. Does this mean liability for attorneys and other advisors as well as for Taxpayers who have non-compliant structures which may now become reportable under the new information exchange laws? Consider the following recent article. A special thanks to Michael Menicucci, Esq. for brining it to my attention:

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U.S. Indicts Four Swiss Bankers in Tax Conspiracy Case

ByDavid Voreacos-Feb 24, 2011

Four bankers who worked at Credit Suisse Group AG were charged with conspiring to help clients in the U.S. evade taxes through secret bank accounts, according to an indictment and people familiar with the matter.

Marco Parenti Adami, Emanuel Agustoni, Michele Bergantino and Roger Schaerer conspired with clients at “one of the biggest banks in Switzerland," according to an indictment yesterday in federal court in Alexandria, Virginia.

Credit Suisse, based in Zurich and the second-biggest bank in Switzerland, is the bank, according to the people who requested anonymity because they aren’t authorized to speak publicly about the indictment.

The bank’s managers in its cross-border business “knew and should have known that they were aiding and abetting U.S. customers in evading their U.S. income taxes," according to the indictment. In the fall of 2008, the bank had “thousands" of accounts with $3 billion in assets not declared to the U.S. Internal Revenue Service, according to the indictment.

The scheme included setting up undeclared accounts protected by Swiss bank secrecy, providing banking and investment services in New York to holders of those accounts, and having bankers provide unlicensed banking services to customers they visited in the U.S., according to the indictment.

“The conspiracy dates back to 1953 and involved two generations of U.S. tax evaders including U.S. customers who inherited secret accounts," according to a Justice Department statement.

‘We Are Cooperating’

“We are cooperating with the authorities in their investigation against these four individuals," Marc Dosch, a bank spokesman in Zurich, said in a statement.

“Credit Suisse is not a target of the investigation," David Walker, a spokesman for Credit Suisse Securities in New York, said in an e-mail.

None of the four defendants are in custody, said Charles Miller, a Justice Department spokesman.

The bank began closing its cross-border business in the fall of 2008, according to the indictment.

The charges extend a U.S. crackdown on offshore tax evasion that included the arrest last month of a Credit Suisse banker, Christos Bagios, on a conspiracy charge. UBS AG, Switzerland’s biggest bank, avoided prosecution in 2009 by paying $780 million and admitting it helped thousands of Americans evade taxes. UBS disclosed data to the IRS on more than 4,000 accounts, prompting 18,000 Americans to avoid prosecution by revealing their secret accounts to the IRS.

Criminal Charges

“I would be shocked if the U.S. Justice Department were not considering criminal charges against Credit Suisse," said William M. Sharp, a tax attorney at Sharp Kemm in Tampa, Florida. “These were key officers and representatives of the bank, conducting what appears to be illegal conduct on U.S. soil."

Taxpayers who made voluntary disclosures may have told U.S. authorities about their interactions with Bagios and the bankers indicted yesterday, said tax attorney Charles P. Rettig in an e- mail.

“The U.S. government has been relentlessly data mining this information and continues to interview participating taxpayers" in the voluntary disclosure program, said Rettig, of Hochman Salkin Rettig Toscher & Perez PC in Beverly Hills, California.

Adami, who lived in Switzerland, began work at the bank in 1994 and recently “represented" that he was a senior manager at the bank, according to the indictment.

Swiss Citizens

Agustoni left Credit Suisse to work at a private Swiss bank. Bergantino worked at the bank from 1982 until 2009, and Schaerer worked in the New York office, according to the indictment. All are Swiss citizens except Adami, who is Italian.

Agustoni and Bergantino traveled to the U.S. to help clients evade their taxes, while Agustoni continued the scheme at two other private Swiss banks, prosecutors charged. The defendants discouraged clients from declaring their accounts to the IRS, according to the indictment.

The indictment cites examples of the defendants’ conspiring with 17 U.S. clients, including residents of Beverly Hills, Palm Desert and La Jolla, California; Miami Beach and Palm Beach, Florida; Norwood, Elizabeth and Oakland, New Jersey; Ossining and New York, New York; Charlottesville, Virginia; and Pittsburgh.

The defendants helped transfer their accounts to two private Swiss banks, an Israeli bank, and a Hong Kong bank, where they continued to conceal their assets, according to the indictment.

Banks Identified

The Israeli bank is Bank Leumi Le Israel Ltd. and the Swiss banks are Bank Frey & Co. AG and Maerki Baumann & Co. AG, according to a person familiar with the matter.

“Credit Suisse is getting swept within the net of prosecutions," said tax attorney Bryan Skarlatos of Kostelanetz & Fink LLP in New York. “The government is aware of the need to portray the whole bank secrecy and tax evasion problem as not just a Swiss and UBS problem, but a worldwide problem."

The indictment shows “the government is moving to other large banks in Switzerland, such as Credit Suisse," Skarlatos said. “It’s moving to smaller banks that many people thought were immune from U.S. prosecution, and it’s moving to banks from other countries, such as Israel."

In the past two years, the U.S. criminally charged at least 24 UBS clients, as well as four ex-UBS bankers and two advisers. A New Jersey businessman was charged last month with conspiring with five bankers at HSBC Holdings Plc to hide Indian bank accounts from the IRS, according to an indictment and people familiar with the matter.

The case is U.S. v. Adami, 1:11-cr-00095, U.S. District Court, Eastern District of Virginia (Alexandria).

To contact the reporter on this story: David Voreacos in Newark, New Jersey, at

To contact the editor responsible for this story: John Pickering at

Author of this guide:

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