California Doctor Pleads Guilty to Failing to Report Foreign Account at Bank Leumi in Luxembourg

Laguna Beach Resident is the Latest in a Series of Defendants Charged with Concealing Bank Accounts at Israeli Banks

Washington, DC—(ENEWSPF)—February 2, 2015. Dr. Baruch Fogel of Laguna Beach, California, pleaded guilty today in the U.S. District Court for the Central District of California to willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR) for tax year 2009, announced the Justice Department’s Tax Division, the U.S. Attorney’s Office for the Central District of California and Internal Revenue Service-Criminal Investigation (IRS-CI).

According to court documents, Fogel, a U.S. citizen, maintained an undeclared bank account held in the name of a foreign corporation at the Luxembourg branch of Bank Leumi.  The undeclared foreign bank account and foreign corporation were set up with the assistance of David Kalai, a tax return preparer who owned United Revenue Service (URS).  In December 2014, David Kalai and his son, Nadav Kalai, were convicted in the Central District of California of conspiracy to defraud the United States for helping certain URS clients set up foreign corporations and undeclared bank accounts to evade U.S. income taxes and for willfully failing to file FBARS for an undeclared foreign account that they controlled.

According to court documents and evidence introduced at the trial of David and Nadav Kalai, Fogel was a doctor who operated several managed health care businesses.  David Kalai suggested to Fogel that he could reduce his taxes by transferring money to a foreign bank account held in the name of a foreign corporation.  David Kalai advised Fogel to open up the bank account that was set up in the name of a British Virgin Islands corporation.  At a meeting facilitated and attended by David Kalai at the Beverly Hills branch of Bank Leumi, Fogel executed documents to open his Luxembourg bank account at Bank Leumi.  According to court documents, Fogel diverted at least $8 million to his undeclared bank account at Bank Leumi’s branch in Luxembourg.

U.S. citizens and residents who have an interest in, or signature or other authority over, a financial account in a foreign country with assets in excess of $10,000 are required to disclose the existence of such account on Schedule B, Part III, of their individual income tax returns.  Additionally, U.S. citizens and residents must file a FBAR with the U.S. Treasury disclosing any financial account in a foreign country with assets in excess of $10,000 in which they have a financial interest, or over which they have signature or other authority.

Fogel has agreed to pay a civil penalty in the amount of approximately $4.2 million to resolve his civil liability with the IRS for failing to file FBARs.  Fogel faces a statutory maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss to any person, whichever is greater.

Principal Deputy Assistant Attorney General for the Tax Division Caroline D. Ciraolo and Acting U.S. Attorney Stephanie Yonekura of the Central District of California thanked special agents of IRS-CI, who investigated the case, Tax Division Trial Attorneys Christopher S. Strauss and Ellen M. Quattrucci who prosecuted the case, and Assistant U.S. Attorney Sandra R. Brown of the Central District of California, who assisted with the prosecution.


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Controversy over OECD changes to permanent establishment rules

Multinational corporations are opposing new international proposals that would lower the threshold for finding that a company has a permanent establishment in a particular jurisdiction.

The proposals are part of the Organization for Economic Development and Cooperation’s Base Erosion and Profit Shifting (BEPS) project, aimed at preventing arbitrage-based tax-planning schemes used by multinational companies. Many such schemes attempt to avoid having a permanent establishment (PE) in countries where the company generates significant revenues, thus avoiding corporation taxes in those jurisdictions.

The proposed new PE rules comprise Action 7 of the OECD’s BEPS plan. This sets out 14 options for modifying the internationally accepted criteria to decide whether a permanent establishment exists. They would also eliminate some of the existing customary exemptions from PE status.

The level of disagreement on PE is probably greater than in any of the other BEPS actions, with the OECD having received more than 800 pages of comments on its PE proposals. These were discussed at a meeting last week, at which representatives of business expressed their concerns. They noted that the current PE rules have worked well for the past 50 years, providing certainty and stability for cross-border trade and investment.

Three main observations were made at the meeting. First, any rule which would make it easier for governments to establish the presence of a PE would almost certainly increase the substantive and administrative costs for cross-border transactions – for example creating PEs for marginal activities.

Second, some of the proposed changes use subjective language that could produce ambiguities, and would inevitably create disputes between countries and increase the risk of double taxation, particularly for so-called commissionaire arrangements.

Third, the proposed options affect the balance of taxing rights between the source and residence country. That balance is not part of the BEPS project and it should be discussed directly rather than by adjusting the PE rules.
Business commentators noted that changes to the PE threshold would impact on other articles in the OECD Model Tax Convention and would have implications beyond corporate income tax – for example on value-added tax. They also suggested that some of the perceived profit-shifting issues could be dealt with by proper application of transfer pricing principles, rather than the proposed changes to the PE standard.

The OECD working group will meet in March to further consider the proposals and the comments received. A revised draft will be issued in the spring.

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And now the Swiss are demanding total disclosure ….

At one point in time, Switzerland was considered by many as the safest and most confidential place to deposit assets.

Times have changed.

Globes Israel has recently reported that major Swiss banks are now demanding that their Israeli clients present confirmation that the property on deposit has been properly reported to the Israeli tax authorities.

Failing to comply with the request from the Swiss bankers could lead to freezing the assets in the account.

And transferring funds to another bank will not be an easy task.   Before most reputable banks will open a new account, detailed information regarding to the source of funds must be provided.

The change in banking policies is connected to the penalties that the US government imposed on and collected from Swiss banks in the fight against tax evasion.   The new American FATCA rules require banks to report assets they hold belonging to US Persons directly to the US tax authority.

This new disclosure environment is now spilling over to other countries.

Furthermore, the OECD is formulating global standards for the sharing of banking information between countries.

Using the various voluntary disclosure programs is a much safer and usually much less costly means of setting yourself right with the tax authorities.


If the tax authorities find you first, you will not only have to face the civil charges and penalties, but you may also be exposed to criminal penalties.

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