Part II: U.S. Citizens Residing Outside the U.S. Probably Have Some Solace Re: Acquittals of Foreign Bank Employees

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Monday’s post on https://tax-expatriation.com/ – the day the Florida District Court jury acquitted the UBS banker, explained the background of what has been a significant prong of the U.S. international tax enforcement efforts by the IRS and Department of Justice.  That prong has focused upon non-resident individuals and in the case of the Mizrahi banker, a U.S. based employee of an Israeli bank.

See,  Part I: U.S. Citizens Residing Outside the U.S. Probably Have Some Solace Acquittals Today and Friday of Swiss and Israel Bankers

To date, the Tax Division of the Department of Justice (“DOJ”) has brought multiple criminal tax indictments against these type of non-resident individuals; focusing on so-called “enablers”.  See Offshore Charges / Convictions Spreadsheet (4/30/14) on Jack Townsend’s Federal Tax Crimes Blog

Indeed, the UBS banker Mr. Raoul Weil was a fugitive from the U.S. justice system for several years, until he was arrested while in Italy (since Switzerland would not extradite him to the U.S.).

One principle strategy of the IRS and DOJ is loud “saber rattling” when focusing on both resident and non-resident individuals.  The limitations on the actual authority over these cases was displayed prominently this Monday when the U.S. jury acquitted the ex-UBS banker, who had allegedly committed the following crimes pursuant to the indictment and DOJ press release:

Weil oversaw the Swiss bank’s cross-border private banking business that provided services to some 20,000 U.S. clients who reportedly concealed approximately $20 billion in assets from the IRS. Weil, who allegedly referred to this business as “toxic waste,” mandated that Swiss bankers grow the cross-border business, despite knowing that this would cause bankers to violate U.S. law. 

Why is this relevant to the ordinary United States citizen or lawful permanent resident living overseas most (if not all) of their lives?  What if these USCs and LPRs have not filed U.S. income tax returns?  See,  USCs and LPRs Living Outside the U.S. – Key Tax and BSA Forms

What if these USCs or LPRs have not filed and reported to the U.S. Treasury all of the details of their financial accounts in their country of residence (FBAR)?  See,  Nuances of FBAR – Foreign Bank Account Report Filings – for USCs and LPRs living outside the U.S.

The big takeaway from these recent acquittals is that the DOJ and IRS will need to tread more thoughtfully when they decide to bring criminal tax charges against any USC or LPR who have lived most all of their US Passportlives outside the U.S.  The U.S. tax law is exactly the same for a non-resident USC versus a U.S. resident USC; however, explaining this difference to a jury in a criminal trial will be difficult for prosecutors.

The government will need to identify cases with very egregious facts which they think are worthy of their resources, time and a potential loss at trial; before criminally prosecuting a USC or LPR residing outside the U.S.  See, Is the new government focus on U.S. citizens living outside the U.S. misguided or a glimpse at the new future?

While a criminal tax case will be difficult in these cases for USCs and LPRs residing outside the U.S., the IRS will nevertheless have multiple incentives to continue to aggressively pursue civil actions and civil penalties against these taxpayers.  Under U.S. law, the burden of proof for civil penalties is much lower and the costs to the individual of challenging a particular case by the USC or LPR can be high, with significant time invested.  See, Why the Zwerner FBAR Case is Probably a Pyrrhic Victory for the Government – for USCs and LPRs Living Outside the U.S. (Part II)

The civil arena, where 99%+ of all tax cases reside, is where the IRS will still have significant strategic advantages compared to the taxpayer.  The IRS can unilaterally make tax assessments and file IRS prepared “substitute returns” for those overseas USC individuals who do not file U.S. income tax returns.

In the meantime, and as civil tax collections steps will be taken increasingly by the IRS, against USCs and LPRs residing outside the U.S.; these individuals still need to be aware of what could befall them if they take the approach of not filing tax returns or information forms required under U.S. law.

See, How will the IRS collect tax and penalty assessments against former USCs and LPRs who live exclusively outside the U.S.?

See, Should IRS use Department of Homeland Security to Track Taxpayers Overseas Re: Civil (not Criminal) Tax Matters? The IRS works with Department of Homeland Security with TECs Database to Track Movement of Taxpayers

At the end of the day, it is very difficult from a policy point of view to defend the logic of worldwide income taxation in the U.S. for U.S. citizens who live outside the U.S.; but that is the law that the IRS must enforce.

2 thoughts on “Part II: U.S. Citizens Residing Outside the U.S. Probably Have Some Solace Re: Acquittals of Foreign Bank Employees

    renounceuscitizenship said:
    November 6, 2014 at 3:05 pm

    Reblogged this on U.S. Persons Abroad – Members of a Unique Tax, Form and Penalty Club and commented:
    “The U.S. tax law is exactly the same for a non-resident USC versus a U.S. resident USC; however, explaining this difference to a jury in a criminal trial will be difficult for prosecutors.”

    Norman Diamond said:
    August 29, 2015 at 5:57 am

    “Under U.S. law, the burden of proof for civil penalties is much lower and the costs to the individual of challenging a particular case by the USC or LPR can be high, with significant time invested.”

    In fact the IRS’s burden of proof is zero. In between the US Tax Court’s calendar call and continuation of a trial, the IRS’s lawyer removed the settlement officer’s declarations from the set of exhibits he was filing, because the settlement officer’s declarations were in fact perjured, signed under 28 USC 1746. The IRS presented no sworn testimony at all, I testified under oath that I had altered the jurat to tell the truth when I didn’t know that the law required perjury, and the result was a settlement instead of a win for me.

    Also in a civil case the accused bears the expense renditioning across the seas, which can well be more than the amount of asserted penalties, as well as more than the $0.00 amounts of tax. When certain particular persons protested against being renditioned across the seas to be tried for pretended offences, they didn’t say if the victims had to pay the expenses of being renditioned, in their declaration by the thirteen united States of America on July 4, 1776.

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