Tuesday, May 13, 2014

Are Swiss Insurers Next (5/13/15)

Reuters has this report:  Foreign Insurers’ Role in U.S. Tax Evasion Under Scrutiny (Insurance Journal 5/12/14), here.

Products hawked by insurance companies can be made to function like banking or financial accounts, even when dressed in the guise of insurance.  Accordingly, such products may be FBAR reportable and, because of the differences in tax treatment of insurance as compared with banking or financial accounts, may be used for U.S. tax evasion.  Moreover, like bullshit tax shelters, they can appear in a blizzard of paper and words that makes it difficult to understanding exactly how it functions.

The Reuters report above indicates that the swisspartners indictment discussed recently (Swiss Non-Bank Enabler Enters NPA and Cooperates to Identify U.S. Persons (Federal Tax Crimes Blog 5/9/14), here) has insurance companies that played some role.  Excerpts are:
Court papers and a Justice Department news release say that insurance company subsidiaries of Swisspartners based in the Cayman Islands and Liechtenstein were also parties to the non-prosecution agreement with U.S. authorities, suggesting U.S. investigators may also be looking at the role of foreign insurance companies in helping Americans to evade taxes. 
The non-prosecution agreement (NPA) was entered into between the U.S. Attorney’s Office, on the one hand, and swisspartners Investment Network AG and the following three wholly-owned subsidiaries on the other: swisspartners Wealth Management AG, a   Zurich-based company that establishes and manages entities such as foundations and trusts; swisspartners Insurance Co. SPC Ltd., a Cayman Islands-based life insurance carrier that offers life insurance and annuity products; and swisspartners Versicherung AG, a Liechtenstein-based insurance carrier that offers a variety of insurance and annuity products. 


  1. Amazing! How can Judge Kocoras so shamelessly favor the defendant for being rich? Even 5 years would be too low a sentence. One can't even make the argument that the defendant has suffered a massive loss to his career by his conviction--- I don't see that a reputation for tax evasion will harm him at all. As for his charitable giving, he can keep on doing that in prison, and give away more than 2% with all the time he has to think, though it isn't clear he'd do so if he decides charity won't buy get-out-of-jail free cards.
    To be sure, though, this sentencing shows shady characters that it does pay off to give a lot of money to charities. I wonder though, given the sentencing letters the charities sent, whether the donations ought to be reclassified as "outside business income". Another possible tax violation?

  2. Until 2011, there was significant ambiguity as to whether or not an interest in a foreign insurance policy was even reportable on the FBAR form. That changed when the U.S. Treasury Department in 2011 issued revised regulations regarding the FBAR, and henceforth there was clarity that the FBAR applied to foreign life insurance policies that are owned by U.S. taxpayers.

    Thus, there is a credible argument to be made that prior to 2011, a foreign insurance policy that was not reported via FBAR was not non-compliant. I've been successful in making this argument within the OVDP to remove such a policy from the OVDP penalty.

    However, another related issue is whether income within the foreign insurance policy is taxable. That issue is rather complex, and involves IRC 7702 compliance issues, and various test (e.g., the "cash value corridor test"). If income in the policy is taxable, and wasn't reported to the IRS, then the insurance policy is non-compliant.

    A completely different angle on the foreign insurance issue is whether "leaver accounts" (accounts that left Swiss banks such as UBS which were under DOJ scrutiny) were transferred into foreign insurance policies in order to "become compliant". Even if the new policies were then reported on the FBAR and income within the policies was declared and taxed, such a strategy would have no corrective effect on past non-compliance. DOJ tax prosecutors would likely point to such a strategy, as they have in other foreign account cases, as an example of a taxpayer attempting to keep a step ahead of the IRS rather than coming into compliance.

  3. Thanks, Asher. Your comments are always good and I and many readers of this blog appreciate them.

    Jack Townsend


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