American Taxmen Targets Indians

“Our View: Indians everywhere they go have been struck with economic fraud, no wonder American IRS chase them...From Wall Street to Dalal: Indians have conned it all. “

GOT INCOME FROM LAND, PROPERTY OR ACCOUNT IN INDIA? THE TAXMAN IS LOOKING AT YOU

The IRS is focusing on Indians in its drive against foreign-income fraud, discovers GEORGE JOSEPH

Submission Deadline: AUGUST 31

A United States citizen or Green Card holder must disclose his/her worldwide income to the IRS. If you are paying income tax in other countries, you may be entitled to a foreign tax credit here, but all worldwide income must be reported to the IRS -- including rental income from land or property. The IRS 2011 Voluntary Disclosure Program expires August 31.

"This case is merely the tip of the iceberg," said attorney Lawrence S Horn, who appeared for New Jersey businessman Vaibhav Dahake who pleaded guilty to one count of conspiring to defraud the Internal Revenue Service.

Though the Indian community has not grasped the urgency of the issue, tax attorneys are warning people to immediately apply for tax amnesty before the deadline of August 31 to voluntarily disclose their income in foreign countries.

The law requires that anyone who is a United States citizen or Green Card holder has to disclose his worldwide income to the IRS. If you are paying income tax in other countries, you may be entitled to a foreign tax credit here. But all worldwide income must be reported to the IRS, including rental income from land or property.

The IRS started targeting Indians after a successful intervention with the Swiss bank UBS AG. About 15,000 people voluntarily disclosed their income from UBS. It mostly affected the Jewish community, attorneys noted.

"The UBS case has essentially become a template for actions against other offshore banks," Miami-based attorney Teig Lawrence told India Abroad. "Offshore enforcement is of the highest priority of the IRS commissioner. The IRS just listed undeclared offshore accounts as number one on its ’dirty dozen’ tax scams for 2011."

The Department of Justice started to send letters to Indian Americans last year. Horn believes at least 50 to 100 people got such letters asking about their foreign incomes.

Then, the administration filed a case in San Francisco federal court for permission to seek the names of people with accounts in HSBC Bank India. Judge Phyllis J Hamilton of the US District Court for the District of Northern California ordered the IRS to serve a ’John Doe’ summons to HSBC Bank USA, NA for HSBC’s records relating to US taxpayers with interests in financial accounts in India.

"The most significant event since the Department of Justice sending ’target’ letters to Indian Americans in July and September of 2010," said Horn, a former federal prosecuter now with the Ne Jersey law firm Sills Cummis & Gross PC, "was last week’s filing by the Justice Department of an application to serve a John Doe summons to HSBC seeking the names of all of its US customers who have accounts with HSBC in India, many of whom are believed by the IRS to have secret, non-disclosed accounts."

He continued: "The battle lines have been carefully drawn. US taxpayers who have undisclosed accounts in India have two choices: They will either apply for acceptance into the IRS 2011 Voluntary Disclosure Program, which expires August 31; or, they take a monumental risk -- if HSBC provides their names to the IRS, they are likely to face criminal prosecution, likely jail terms in federal prison and confiscatory civil penalties, which could result in owing the
IRS more than three times the amount in the undisclosed accounts."

An HSBC spokesperson told India Abroad that the Bank "is reviewing the summons and supporting documents. HSBC does not condone tax evasion and fully supports the US efforts to promote appropriate payment of taxes by US taxpayers. While complying with the law in all the jurisdictions in which it operates, including India, HSBC cooperates with requests from US authorities.

She also pointed out that at the time of opening an account with HSBC, the account opening forms and the non-resident Indian sevices brochure make it clear that under US laws, US citizens and residents are subject to tax on their worldwide income.

Lawrence warned: " If the US government obtains an account holder’s name before the account holder makes a voluntary disclosure, the IRS may refuse to accept the account holder into the offshore Voluntary Disclosure Program. The amnesty deadline complicates matters, because there are numerous requirements which have to be satisfied. Account holders generally have very little information regarding the accounts because they usually have the bank hold their mail. They first have to gather the missing statements and then have a CPA prepare the amended returns. There are many other requirements as well."

He pointed out some important points: Worldwide income should be reported on a taxpayer’s Form 1040. Schedule B of Form 1040 specifically seeks to know if a taxpayer has a financial interest in or signatory authority over an account in a foreign country. The taxpayer is also required to list the name of the country wherein the account is held.

Taxpayers are out of compliance in four primary ways: a) by failing to report the income earned on their foreign accounts in their Form 1040; b) failing to check the boxes on Schedule B to report the accounts and/or foreign trust activities; c) failing to file Form 90-22.1 to report an intertest in a foreign account; and d) failing to report their interest in a foreign corporation.

"The DOJ and the IRS have limited resources," Lawrence said. "That said, they are actively looking for fraud on a mass scale. Once they find a source of fraud, they prosecute the aggregious cases to foster headlines -- which drive compliance. The current action requesting account holder information from HSBC was announced a week before April 15, which is the filing deadline. In addition, the IRS just announced a new offshore Voluntary Disclosure Program February 8. The timing of the announcement is not coincidental."

He continued: "I do not believe that the IRS initially intended to target the Indian community. I believe that the IRS obtained information concerning HSBC’s efforts to help individuals evade taxes in the US. I am not certain how the US obtained the information on HSBC NRI, but HSBC acknowledged that a former employee stole account-holder information from their branch in Switzerland. The information ended up with French authorities, who I believe, shared the data with the US."

As long as the DOJ/IRS has not already obtained the name of a taxpayer and the taxpayer is not otherwise under investigation or subject to an IRS examination, the taxpayer can make a voluntary disclosure.

If the IRS targets HSBC now, could they target State Bank of India, which has branches in the US, or banks that serve only inside India? Lawrence said it was possible. Even if the banks are not targeted, many smaller banks will simply elect not to deal with US customers and close accounts especially when the Foreign Account Tax Compliance Act takes effect.

In voluntary disclosure, the penalty is less. But when a person is prosecuted, he might be subject to jail terms, penalty and also a civil penalty of up to 50 percent of the highest amount kept in the bank during 2003 to 2010. Even if the balance is less, they will look at the high balance held during that period.

The 2011 Amnesty Program requires that the value of the land or property be included in the calculation of the 25 percent high balance penalty if the taxpayer failed to report the rental income from the property on his/her Form 1040.

source: washingtontimes.com