Undisclosed Foreign Bank Accounts

The Undisclosed Foreign Bank Account and the IRS          

The first version of the Broadway show “Evita” made its way to Broadway in 1979. The revival of the show in 2012 was a hit as was the movie starring Madonna. From that show, portending perhaps future IRS action, was the song called “And the Money Kept Rolling In”, lyrics by Tim Rice. For those who may have missed the production, the story of Eva Peron is classic. She was the second wife of Juan Peron, dictator of Argentina. She became famously loved by her Argentinean constituents for the Peron Foundation which extracted money contributions which were then given by Eva to the poor and destitute. Only an application to show need and her approval was required. One verse of that song is particularly appropriate for the current melee surrounding foreign bank accounts and the failure to properly report their existence and any tax required to be paid to the IRS.

If the Money keeps rolling in, what's a girl to do?

Cream a little off the top for expenses, wouldn't you?

But where on earth can people hide their little piece of heaven?

Thank God for Switzerland!

Where a girl and a guy with a little petty cash between them

Can be sure when they deposit no one's seen them

Oh, what bliss to sign your checks as 30127

Never been an account in the name of Eva Peron!!

                                                                                                                                                           

And so it was for many years, whether Americans were using these foreign bank

accounts for their convenience when working overseas or as their little piece of heaven

individual clients and their lawyers and accountants will have to determine. But the

secrecy surrounding the Swiss bank account has been broken. The IRS through an

informant laid rest the magic numbered bank account. The now famous case involves the Swiss bank called UBS. Threatening IRS criminal action against the bank UBS turned over the names of more than 4000 US taxpayers who had maintained Swiss bank accounts. More banks have been leaned on by the Internal Revenue Service and the government of Switzerland has vowed its cooperation with the Internal Revenue Service. Other countries have followed suit and more are likely to agree to cooperate with IRS under threat of IRS action against them.

IRS soon realized it had hit the tax mother lode. But instead of attempting to assign numerous agents to ferret out these undisclosed bank accounts the agency decided instead to create a voluntary disclosure program called the “Offshore Voluntary Disclosure Initiative”. It has been wildly successful and has brought in over $5 billion in taxes, penalties and interest from approximately 35,000 cooperating and scared taxpayers. The teeth in the IRS program is the potential for criminal exposure. Having a foreign bank account may be one thing, but spending time in a federal penitentiary as a consequence is an entirely different matter. As news of the breach in the wall of silence in Switzerland began to spread and the resulting cooperation of banks and securities firms overseas, clients began showing up on we lawyer’s door steps.The pace of investigation will not soon abate as IRS and Government generally get more computer savvy and taxpayers realize that it may be better to come clean about these accounts than be exposed to huge tax penalties and possible criminal sanctions. Eva would have been caught in a New York minute. 

The Business of Lawyering Part 3- The Mission Statement and Business Objective

The Mission Statement

One can argue that a written business plan for lawyers is unnecessary. Don't we know what we are about and what we plan to do? The answer is a surprising no. When first I started my own practice one of my first cases was a simple bankruptcy. Although my background was entirely in the IRS tax procedure area nonetheless I spent countless hours dealing with a single client and bankruptcy issues beyond my grasp. A simple mission statement would have caused me to analyze what it is I plan to do and who do I plan to do it for. In fact, it wasn't for many years, until I realized the potential  I had with all my prior IRS experience.

The purpose of the mission statement is to explain succinctly, what is the purpose of this business. What type of clients will you seek? How do you plan to operate this business? This statement can be as short as a paragraph or two. For example:

“The purpose of this practice will be to represent individual taxpayers and small businesses before all branches of the Internal Revenue Service, including representation in the United States Tax Court. The practice will be conducted as a sole proprietorship in Bergen County New Jersey.”

With this as my mission statement I would never have taken the bankruptcy case. Instead, I would have referred that matter to a bankruptcy attorney and perhaps given myself the opportunity to explain to him the limited nature of my tax dispute practice. In the long run, this would have better served to build my practice as he could have become a referrer of business in my chosen field.

Once the mission statement has been written, it should define many of the other aspects of the business plan. Needless to say with changing times, a mission statement may have to be rewritten. Without the simple mission statement a lawyer thrown into the private practice of law has no idea whether he or she is fish or fowl. Even the general practitioner must know and put some limits as to the type of client problems he will attempt to resolve, if for no reason other than to try to keep their own sanity.

As a suggestion ,it may be useful to include in this mission statement, what credentials or experience you believe you have which will likely bring success to the business. For example, adding this to my mission statement:

“As a former IRS agent and IRS District Council attorney in New York, New York and having numerous current IRS contacts, the purpose of this practice will be…..”

The mission statement is not only drafted for your own use. It may be useful for future

employees and clients to know exactly what your business of lawyering  is about. Perhaps one day it will appear as part of your marketing strategy brochure about your firm or in a private website.

Business Objective:

The business objective is the plan to obtain the mission. How will the mission be accomplished? These objectives are more specific than the mission statement. For example:

To create a law practice initially as a sole proprietorship with potential for future associates to be hired. To retain and train associates with a view toward eventually growing into a law firm, which will have at least two partners. The firm will take an active role in the County and State Bar Association and will obtain a reputation as the state's premier firm in its field. The practice will be able to support retiring partners by the addition of new associates and partners while maintaining a continuous high level practice standard.

While the mission statement is involved with branding, the business objective makes clear how the brand will be obtained.

Naturally the business objectives should change as circumstances in the legal world change. For example: a downturn in the real estate market and resulting claims for real estate appeals may suggest moving into that field. No one should hold onto an objective that doesn't work, nor change the one that does.

Perhaps objectives should be broken down into:

Immediate Objective: This can be something as simple as paying the bills and earning a living

Higher Objective: growth, reputation, even fame.

Highest Objective: a contributor to the legal field, mentor, teacher.

Many lawyers attempt only to meet their immediate needs, but the long-term satisfaction in the practice comes from objectives that may be greater than oneself.

No businessperson expects obtaining the objectives without some difficulty. Lawyers should anticipate being bored and stressed at times, but that is not reason enough to toss out the business objectives.

The personal and professional growth embodied in the business objective should be set out early in the business plan.

Same Sex Marriage and the IRS

Before I begin a discussion of what now may amount to old news, I wish to disclaim as follows. For some same sex marriage is a very emotional issue. And I am well aware that they are following it closely and therefore may know a great deal more than I.  Now that said, let’s get down to it. The Supreme Court has decided the Windsor case and has struck down section 3 of the Defense of Marriage Act which required same-sex spouses to be treated as unmarried for purposes of federal law. There, that seems simple enough. Now the sloppy part. A number of issues will have to be sorted out and IRS will have to get into the business of making important decisions in the very near future.  One example is whether the scope of the decision covers only same-sex couples married in a state that allows same-sex marriages and residing in that state. Will IRS look to the domicile of the same-sex couple to determine their rights? But the benefits to individuals who are properly covered by the decision are numerous. These persons will be entitled to file jointly. Unfortunately, they will also discover the pain of the marriage penalty depending upon the extent of their individual earnings. As was held in Windsor, married same-sex couples will be entitled to use the unlimited estate tax marital deduction and elect portability for any unused estate and gift tax exemption. For gift tax, they will qualify for gift splitting and transfers between them will be exempt. They will qualify for tax-free employer health coverage and may receive reimbursement under health flexible spending accounts. In the retirement area, married same-sex spouses will qualify for survivor death benefits under pension plans and favorable withdrawal rules will apply to those who inherit plans or IRAs. There is some question how IRS, reeling from scandal, losing its Commissioner, knee deep in health care reform rules and facing a reduced budget with forced closings and furloughs under sequester  will handle all of this. My guess will be poorly. Clients are perhaps best advised to file protective claims in anticipation of future IRS rulings. By this I mean, a claim for refund, deduction or credit must be timely filed pursuant to the revenue code. A protective refund claim hedges the client’s bet that any change will be favorable to their prior filed and paid tax returns. IRS has been receiving numerous such claims. Practitioners should note that a letter to IRS is most likely not sufficient to create a protective refund claim and that proper claims must be filed.

The Business of Lawyering- Part 2-Critical Essentials

 Often Lawyers will "know" what is needed for a client to succeed in business but will not apply that same advice to their own business of lawyering. Part 2 is about two critical essentials: Finding a mentor and the all important Business Plan

Find a Mentor:

“Luke, use the force”. If somehow you may have missed the Star Wars trilogy, and that phrase means nothing to you, it's time to take a look at the relationship between the characters in those movies. Luke Skywalker in possession of a powerful unearthly force is unaware of its utility. It is only through the gentle coaxing and guidance provided by his mentor Obi wan that he realizes his true potential. Naturally he goes on to defeat Darth Vader, the personification of evil. There you have it. There would have been no star wars trilogy without the mentoring.

Finding a mentor, before embarking on the practice of law may unleash your personal attributes and guide you to a successful practice.

Those are fortunate who perhaps have had lawyer family members, who will honestly assist them in understanding what the practice of law is all about. However, for the rest of us we, like Luke, must find our own way.

Many local bar associations have created buddy systems to assist new lawyers in discovering the use of the force. Lawyers you may know or former professors may be willing to take on the role of Obi wan. The importance of finding a mentor cannot be overstated. The ideal mentor is someone who has lived the life that you are seeking. Be wary of those giving free off the cuff advice as to what you ought to be doing if they have not ever done it themselves. Needless to say your mentor should exhibit the same personal attributes necessary for anyone to practice law. Keep in mind that many have gone before you, and there is no need to reinvent the wheel. For those lawyers currently employed in a legal position, be careful, also, of the undue influence of superiors, who may appear to you to be quite successful. The best mentor is not necessarily the person with the most income, assets or reputation. Next to your attitude, finding a solid mentor could be your biggest asset. That mentor can also help you devise a workable business plan.

Create a written business plan

I have a friend who teaches with me in the law and business programs at FDU. When students complain about having to drag heavy textbooks, computers, codes and regulations, Frank uses the analogy of a plumber going off to work. The plumber has a plan and knows the tools he needs in order to perform his services. A written business plan is a tool for success.

No bank allows a customer to borrow $.10 toward a new business without a written business plan. Lawyers who advise clients with new businesses hopefully make the same suggestion. But when it comes time to starting their own practice, few if any lawyers take the time to create a written business plan. We professionals should not be above taking our own advice.

The benefits of creating a written business plan are many:

1. It helps to organize your thinking goals and objectives.

2. It helps you to realize whether or not, success is in the cards.

3. It can be as simple or as detailed as you choose.

4. Should you have the need to borrow money, it can be presented to banks and others.

5. It helps keep you on track and can be amended as the practice grows.

6. Perhaps your employees or associates can better understand your practice.

7. The written business plan is free and can be a private document.

8. The business plan can include your best financial estimates as to income and expenses.

9. The plan can simulate the operation of your business and can cause you to rethink aspects of it without making costly errors.

10. There are many Internet sources that can assist you in creating your business plan depending upon your objectives.

Basic elements of the written business plan:

Ø      Mission Statement

Ø      Business Objective

Ø      Marketing Strategy

Ø      Analysis of Competition

Ø      Funding needs

Ø      Projections of Income and Expense

Ø      Summary/Conclusions

Each of these will be discussed in later posts.

The IRS Scandal Casablanca Style

       It's 1941 in Casablanca. The place to wait out exodus to Europe or America is Rick's Café. Humphrey Bogart as Rick, an ex-pat with a questionable background, dashing in a white dinner jacket is upset. Police Captain Louis Renault played by Claude Rains upon orders of evil Nazi Major Strasser blasts his Police Inspector whistle in the middle of the Café and orders it immediately closed. Bogart demands to know what is going on. Captain Renault responds tongue in cheek:  “I am shocked, shocked to learn that gambling is going on in this café”. Just at that moment the roulette croupier approaches Renault with his gambling winnings in hand, and Renault ,as suave as ever, pockets the francs and responds “Merci Beaucoup”. It is a beautiful scene and a touching comment about corruption in government. Now as a former IRS agent and IRS tax trial attorney, I too am “shocked, shocked to learn that the IRS could be used for some political purpose such as scrutinizing tax exempt organizations with Tea Party origins” Who would ever dream that such a thing was possible? The president is clearly playing the role of Captain Renault. He is shocked, outraged, discombobulated. He has defended and received the head of the Commissioner of Internal Revenue on a platter. Poor Commissioner Miller. In his ascent within the Internal Revenue Service it is a shame that perhaps Miller may have missed studying the classic film “Casablanca”. He would have fared better if he would have modeled himself after Rick, who “refused to stick his neck out for anyone”. On an ABC news program, one white house aide declared “the activity was outrageous and inexcusable and it was stopped and it needs to be fixed so we ensure it never happens again”. Well, you're not fooling me. Casablanca is one of my absolute favorite films.

Country Lawyers Wanted

   During the Watergate hearings Sam Ervin would often play down his acute legal acumen by referring to himself as just a “country” lawyer. Those Watergate folks as well as the then President of the United States learned the hard way that a country lawyer did not necessarily mean a bumpkin. But apparently in the United States in some rural areas a real country lawyer is hard to find. A recent front page article in the New York Times bannered: “No Lawyer for 100 miles. So One Rural State Offers Pay”. The article talks about Bennett County in South Dakota which is situated between two Indian reservations on the Nebraska border. One lawyer who has practiced there for 64 years is near retirement. After him the next working attorney is 120 miles away. So the state of South Dakota is planning to do something about this problem. South Dakota is not alone. States like Nebraska and Iowa are coming up with their own lawyer “seed” plans. The federal government has for years had a medical program called the National Health Service Corps which offers up to $60,000 in tax-free loan replacement for two years of medical service in under served areas of the country. That program consists of nearly 10,000 medical, dental and mental health professionals serving 10.4 million people almost half of which are in rural communities. South Dakota has come up with a similar plan for lawyers. Its new law which will go into effect in June 2013 requires a five-year commitment from the applicant and sets up a pilot program of up to 16 participants. Each “Go West” lawyer will receive an annual subsidy of $12,000. That doesn't sound like much to high powered corporate legal eagles. But for those interested in seeing real eagles fly, it may be just the ticket. By all accounts there may be plenty of work out there.

The Business of Lawyering Part 1

What does it take to practice law.  Do you have the right stuff?

Attitude:

The business of lawyering requires the same attitude as that of any new business enterprise. It is often said that attitude is in fact the most essential ingredient. You must have the desire to succeed. Being a business owner is different than being an employee. Some people make better employees. A simple but honest self assessment should tell you whether or not you really want to practice law as an owner, partner or rather as an associate/employee:

1. Do you have a passion for legal work?

2  Are you comfortable making decisions?

3  Can you be creative and innovative?

4  Do you have the discipline to work on your own?

5  Are you willing to continue learning in your field?

6   Do you have confidence in yourself to succeed?

7   Are you optimistic about the future of your business?

8       Do you know your personal, financial and spiritual needs?

9   Do you know your personal and family goals?

10.Do you have the desire to succeed?

The objective in the practice of law is also to be happy at it. In August 2011 my article called “Can Lawyers Learn to be Happy “was published by the Ali-ABA. It is available free on the internet and here on this blog. Perhaps it should be read before going any further.

Personal attributes:

                                             

      Problem Solving:

Perhaps there are as many types of personalities practicing law as there are in any other field. Unfortunately 52% of the lawyers in practice, say they are unhappy. This may mean they simply do not have the personal attributes for the practice of law. In order to practice law, the new lawyer must realize that his clients are retaining him in most instances to solve a problem. He must be a good listener, sociable and patient. Part legal wizard and part psychologist. Lawyering is a helping profession. Solving the client's dilemma must be personally satisfying to the lawyer as well. Those who enter the profession to simply make money should rethink the prospect. The national average for income for lawyers is well below that for many other professions and hovers somewhere around $75,000. If it is money you are after, consider a career in sales selling something other than legal services; preferably something large, like commercial real estate.

                                                      Confidence:

Most of the lawyers I have ever worked with who I believe would consider themselves successful, would also score high on the confidence chart. Clients are not inclined to follow lawyers who do not seem to be leaders. There must be an almost fearlessness in the face of questionable legal issues. The client is seeking an advocate in many cases, a clear explanation and a plan of action to resolve their legal issues. The business of lawyering is not about responding to client questions as you would on a tort or contract law school exam. While your professor there may have been interested in you turning up every possible legal issue, clients are not interested in the esoteric a of the law but rather answers to their particular problem. Those answers must be provided in a clear, confident and understandable fashion. We must remember as lawyers, that we are selling an intangible. If the advice rendered does not seem to be of value to the client disappointment and resentment may follow.

Along with confidence comes the ability to distinguish between true emergencies. I once worked as an associate for a lawyer who seemed to contrive his emergencies on Friday afternoon, guaranteeing a Saturday work schedule. It took me a while to realize that his sounding the alarm bell was simply his personality trait more than the demands of clients. Having a cool head under fire is certainly desirable. Right now, take a look at your fingernails. If they are bitten to the bone you may not have the right stuff for the practice of law and be happy at it. Perhaps when you were growing up, you were told that your argumentative nature would make you a natural candidate for the practice of law. This advice was most likely given by a non-practicing lawyer. An even temper without rage creates an atmosphere of success; that argumentative nature only leads to arguments. One must be firm and confident, not a bag of hot air. Remember the practice of law is a marathon not a sprint. Many try the practice for a few years, and then simply give it up.

                                                               Work Experience:

The practice of law draws people from most all academic majors. No particular college study necessarily prepares one for the practice of law. Having somewhat of an exposure to accounting and taxation or law for the small business owner may be ideal, but often these courses do not fit into the curriculum for a liberal arts degree at most colleges. And it is from the liberal arts colleges, where most lawyers hail.

Some types of prior work experience are ideal for the practice of law. Being a clerk for a popular judge in the state or federal courts can give one a leg up in understanding litigation practice. Being a summer clerk in a law firm practicing in an area of your interest can also help. These days, given the limited number of employment opportunities for lawyers as associates volunteering one's services to a law firm may get you in the front door. Even lawyers cannot resist the word free. There is also government service as an excellent intro into private practice. My own experience as an IRS agent and after law school, IRS District Council attorney was invaluable in creating a niche practice in the IRS tax dispute area. If all of these suggestions are beyond your reach consider that even being a camp counselor can be of value. In such a role, people are following your advice and you are learning how to give it. Obviously, no job experience should bring you in conflict with the law and a possible negative review by a character committee in your Bar Association.

The practice of law involves “branding”. So there may be some issues as to prior work experience. For example: if yours will be a local town practice being remembered as the clerk in a liquor store or a gas attendant may somewhat diminish your being viewed eventually as a successful attorney.

                                                       Love of Learning

The educational requirements for the practice of law should be clear by now. You have figured your way through law school, past all the necessary tests and have been admitted to a bar association or two. That shows you have the talents and skills to learn. But the real question is whether you love learning. The practice of law, unlike law school, has no final exam. It is a continuing research project. And unlike law school, the decisions you make will affect the lives of others, including your own.

It is true that some areas of the law can be reduced to a mechanical operation. In years gone by, law offices, which specialized for example, in residential real estate closings would arrange an assembly line of secretaries and paralegals who would conduct the necessary activities to bring about the closing. In some cases, this assembly line approach to the practice of law may still be possible. But be forewarned, the competition in the mechanical area of the practice of law can be overwhelming.

The practice of law continues to evolve and practitioners must evolve with it. For example: Being somewhat tech savvy, unheard-of in the past is now second nature in the practice of law. Having a presence on the Internet is almost as important as having an office downtown. Spanish as a second language was no necessary tool 25 years ago, but today it is the second most often spoken language in the United States.

Clients expect their lawyers to be at the top of their game in their chosen field of practice. Taking stale ideas from even the finest law school is no guarantee of success in the real world practice of law. Great success in law school does not prepare anyone for the business of lawyering.

However, if the law school experience, and the rigors of the research associated with going to school did not stimulate or interest you other than obtaining the necessary ticket to the bar exam, you may simply not be ready for the real practice of law.

The practice of law is dynamic not static and requires constant learning.

                                                  Life Philosophy

Before embarking on the practice of law one must soul search to determine his or her personal philosophy of life. In many ways the practice will alter one's lifestyle. How will this business venture coincide with that philosophy? There are many who take home way too many client problems, reviewing them over night instead of getting a good night sleep. They may ditch family and friends in favor of long hours at the office. Does the future practitioner have the support of his spouse or life partner? Do they understand that often the law is a jealous mistress? Many believe that when law school is over the tension and stress are over as well. Nothing could be further from the truth. Setting personal goals early in the practice may force the practitioner to align his decisions accordingly and sitting down with all concerned is a necessary first step.

It's not entirely uncommon for a person to go through their entire life without having a frank discussion with themselves about, what is in fact, their personal philosophy. In this regard, consideration must be given to not only the personal and financial aspects, but the spiritual needs which every person has in order to derive joy from work. Whether the practice of law is for you depends on who you think you are. It certainly is not for everyone. Many go through the education and will never practice law at all.