IRS Goes after Swiss Bank Accounts of Tax Evaders

We have all heard the stories about rich people hiding their money in secret Swiss bank accounts. Well, that may no longer be possible, as least when it comes to evading U.S. income taxes.

In a lawsuit filed by the Internal Revenue Service ("IRS") and the Department of Justice ("DOJ"), the U.S. Government is seeking to compel the Swiss bank UBS to turn over information on 52,000 American depositors, whose accounts hold approximately $14.8 billion U.S. Dollars. The prosecutors will be seeking "John Doe" summons, ordering UBS to turn over information about unidentified U.S. taxpayers believe to be UBS depositors.

This case has caused a large diplomatic stir. Swiss president Hans-Rudolf Marez made a statement to assure the public that Switzerland's banking secrecy remains intact. The case was originally set to go to trial on July 13, 2009, but Judge Alan S. Gold continued the trial date to August 3, 2009 to allow parties an opportunity to settle. Judge Gold ordered the IRS and the DOJ to consult Obama administration on how far the U.S. government may be willing to proceed if UBS will not voluntarily disclose the information on the account holders. In further attempts for diplomatic resolution, U.S. Secretary of State Hillary Clinton and Swiss Foreign Minister Micheline Calmy-Rey are scheduled to meet on Friday, August 1, 2009.

Earlier this year, UBS was facing criminal charges in a separate U.S. tax dispute. UBS settled that case by paying $780 million U.S. Dollars, and turning over information on around 250 American depositors with secret bank accounts. UBS's admissions in the earlier criminal case have supported U.S. Government's demands in the instant civil case.

Switzerland's banking industry has boomed due to its secrecy, and the Swiss are reluctant to give up on that. The recent U.S. cases are unprecedented hits on the famed Swiss bank secrecy. It is expected that UBS will end its cross-border banking operations.

Some of the information in this blog were obtained from articles by The Wall Street Journal, The Associated Press, The New York Times, Reuters, and USA Today. For additional information, run a search on Google.

Robin Mashal is a partner at the law firm of Hong & Mashal, LLP, and can be reached at (310) 286-2000. His practice focuses on business law, real estate law and civil litigation. Hong & Mashal LLP is a California business law firm.

The Advertisement Battle between Microsoft and Apple

For months, Apple was running "Get a Mac" television advertisements coloring PC computers as inferior products. The ads depicted Apple Mac as a young, hip character as contrasted to the PC computer, an outdated, geeky, unreliable character.

Finally, PC started fighting back. Microsoft started running "laptop hunter" ads that challenged a shopper to find an Mac laptop computer with features found on PC laptop computers with a budget of "under $1,000". After she shopped Mac and PC stores, she chose the PC laptop and paid cash for it with the money she won in the challenge. These ads apparently did not sit well with Apple.

Apple's lawyers reportedly contacted Microsoft demanding they stop running the laptop hunter ads. Since the original PC ads started running, Apple had reduced the laptop prices, so the under $1,000 price challege no longer held true. Microsoft partially heeded the call from Apple's attorneys. Instead of discontinuing the laptop hunter campaign ads, Microsoft started running updated hunter ads that challenge shoppers to find Mac laptops with similar features to PC laptops for "under $1,700".

Apple and PC computers have been market rivals since Apple Computer Inc. (now, Apple Inc.) was incorporated in 1977. The final chapter in this competition is yet to be written. One thing is for certain that this competition prevents either of these two market forces from having an unrivaled domination of the computer market. And true competition benefits consumers with the selection, quality and price of products available in the market.

Some of the information in this article was obtained from articles on Cnet News, PC World, The Christian Science Monitor, The National Business Review, and Wikipedia.

Robin Mashal is a partner at the law firm of Hong & Mashal, LLP, and can be reached at (310) 286-2000. His practice focuses on business law, real estate law and civil litigation. Hong & Mashal LLP is a California business law firm.

Buyers Beware: Get-Rich-Quick Advertisements May be Scams

We have all seen the commercials on television, promising to give us the secret to riches for a few dollars. They seem too good to be true, but who could resist them in these economic times. As it turns out, some of the advertised items are nothing more than scams.

The government has just announced a joint operation by the Federal Trade Commission ("FTC"), the Department of Justice ("DOJ") and some state agencies, investigating companies that allegedly conned consumers out of millions of dollars through deceptive advertising and other illegal practices. The law enforcement action which has been named Operation Short Change, has targeted some widely advertised products.

Several of the investigation targets are California companies. For example, one investigation target is John Beck Amazing Profits, LLC, which apparently marketed "John Beck's Free and Clear Real Estate System". The product was sold for $39.95 and made promises about purchasers' earning potentials, but the promises were allegedly not truthful. Other targets include John Alexander, LLC and Family Products, LLC, both California limited liability companies, with addresses in Van Nuys, California.

For additional information, refer to the NetworkWorld.com article, visit FTC web site, or search Google.

Robin Mashal is a partner at the law firm of Hong & Mashal, LLP, and can be reached at (310) 286-2000. His practice focuses on business law, real estate law and civil litigation. Hong & Mashal LLP is a California business law firm.

Have You Made Your Estate Plan Yet?

We often do not think about preparing our estate plan until something reminds us of it. Sometimes we are reminded when we hear of the passing of celebrities, such as the recent deaths of Farrah Fawcett, Ed McMahon, Michael Jackson and Billy Mays. Sometimes we are reminded by the illness or passing of a loved one. Other times, articles like this give us a reminder. No matter what brings this to our attention, we should prepare our estate plan early and while we are in good mental and physical health, to avoid complications for our loved ones.

Estate planning tools such as wills and living trusts allow the property owner to plan who will benefit from their estate, which properties or dollar amounts are given to each beneficiary, and who will be in charge of administring the estate after they pass on. Moreover, proper estate planining can minimize the amount of estate taxes that have to be paid after the person dies, and can eliminate the need to go through a probate. These will maximize the amount of properties that will be passed to the beneficiaries. Since no one can predict how many years they will live, it is best to prepare one's estate plan sooner rather than later.

Sometimes, the beneficiaries may challenge a person's will or trust, claiming the deceased was not in proper mental state when he or she executed the estate plan. For this reason, it is best to prepare and execute the estate plan in an earlier age, rather than in an older age. Moreover, a complete estate planning package often includes advance health care directives, which are instructions for how a person wishes to deal with situations where person is seriously ill. Such instruments need to be prepare and executed while the person is in good health and able to properly state their wishes.

Estate planning is a broad topic which cannot be properly summarized in a few lines. This weblog is intended as general information and should not be relied upon as legal advice.

Robin Mashal is a partner at the law firm of Hong & Mashal, LLP, and can be reached at (310) 286-2000.

Countrywide Financial's senior executives are sued by the SEC

On June 4, 2009, the Securities and Exchange Commission filed a complaint against Angelo Mozilo, David Sambol, and Eric Sieracki, in the United States District Court, for the Central District of California, Case number CV 09-03994 VBF (AJWx). The complaint alleges that the named defendants "misled the market by falsely assuring investors that Countrywide was primarily a prime quality mortgage lender which had avoided the excesses of its competitors."

Based on this complaint, Countrywide Financial Corporation was founded by Eric Mozilo in 1969. Countrywide was headquartered in Calabasas, California, and its shares were traded on the New York Stock Exchange. Countrywide became one of the country's largest mortgage lenders until it suffered losses due to subprime loans, and was merged into Bank of America in July 2008. Angelo Mozilo was Countrywide's chairman of the board and its chief executive officer. David Sambol was Countrywide's chief operating officer. Eric Sieracki was Countrywide's chief financial officer.

Robin Mashal is a partner at the law firm of Hong & Mashal, LLP, and can be reached at (310) 286-2000. His practice focuses on business law, real estate law and civil litigation. Hong & Mashal LLP is a California business law firm.

Some Relief for the Borrowers

With the current state of global economy, there seems to be some good news for the borrowers. Here are a few examples.

Banks are Cash Strapped
The government has been conducting "stress tests" on banks, and telling some they need more liquidity. This apparently prompted some banks to send letters to borrowers with offers to discount the principal amount of their mortgage debts, if they can currently payoff their loan balances. Some borrowers have been able to approach lenders and negotiate nearly 30% off their principal balances to payoff the loan in cash. These scenarios are limited to large commercial mortgage loans, and only for those borrowers who can afford to pay them off in cash. But for those who have this ability, it is an amazing opportunity to make a good deal of money as the market will recover in the next few years.

Qualified Principal Residence Indebtedness
Section 108 of the Internal Revenue Code treats a discharge of a debt as ordinary income, taxed at ordinary income tax levels. For example, if a homeowner owes $500,000 to a bank and bank agrees forgive this debt, this like the homeowner had income of $500,000 and used it to payoff the debt. However, in light of the current "mortgage meltdown", Congress has created an exception. The Mortgage Debt Relief Act of 2007 allows a homeowner to exclude income from the discharge of debt on their principal residence in calendar years 2007 through 2012, based on mortgage restructuring, or forgiveness of mortgage debt in connection with a foreclosure. The Act allows up to $2,000,000 of forgiven debt to be excluded from income for married couples filing jointly, and up to $1,000,000 for married couples filing separately.

Deferred Discharge of Debt Income
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009. This Act added a new Subsection 108(i) to the Internal Revenue Code, which permits a debtor to defer the recognition of discharge of debt income from the purchase, exchange, or forgiveness of a debtor’s debt instruments during calendar years 2009 and 2010. When this election is properly made, the taxpayer must include the discharge of debt in taxpayer's income ratably over the five taxable years starting with the fifth taxable year after the taxable year in which the reacquisition event took place.

Protection for Credit Card Borrowers
On May 22, 2009, President Obama signed into law the Credit Card Accountability, Responsibility and Disclosure ("CARD") Act of 2009. This new regulations will become effective February 2010, and are intended to protect the consumers from deceptive practices by the credit card companies, and include the following features: Cardholders must be given 45 days' notice prior to significant term changes including interest rate increases; credit card company cannot raise interest based on cardholder's record with other creditors; no more double-cycle billing; and payments on each statement will be due at least 21 days after the statement is mailed out.

Robin Mashal is a partner at the law firm of Hong & Mashal, LLP, and can be reached at (310) 286-2000. His practice focuses on business law, real estate law and civil litigation. Hong & Mashal LLP is a California business law firm.

Can Incorporation be a Disadvantage?

There are numerous articles addressing the advantages of incorporating your business. I would like to point out some disadvantages of incorporating a business under certain circumstances under California law.

Corporate Formalities
Running a business in corporate form requires far more formalities than running unincorporated businesses. Corporations must hold an annual shareholders' meeting and an annual directors' meeting. In addition, if a corporation contemplating an extraordinary transactions, should hold a special meetings of shareholders and directors to approve the same. All corporations incorporated under California law (or foreign corporations qualified to do business in California) must annually file a Statement of Information with the California Secretary of State and pay the $25 filing fee. In the Statement of Information--which is a public document--the corporation discloses its address, the names and addresses of its officers, directors and agent for service. By contrast, sole proprietorships and general partnerships are not subject to the above formalities.

Federal Taxes
A corporation is considered a separate legal entity from its shareholders. Therefore, a corporation's income is taxed once at the corporate level, an again at the shareholder level when the money is distributed to the shareholders. A significant portion of the corporate income can be lost in such a "double taxation". Some corporations may qualify to make "Subchapter S" election which will eliminate double taxation.

California Taxes
A corporation formed under California law (or a foreign corporation that qualified to do business in California) will have its income subject to California franchise taxes. Section 23151(d) of the California Revenue and Taxation Code sets the minimum franchise tax rate at 8.84 percent. Except for the initial year of formation, a corporation must pay a minimum franchise tax of $800, as estimated tax, by the 15th day of the fourth month of a corporation's taxable year. As well, the income will be subject to a second level of taxation at the shareholder level.

Local Law Restrictions
Sometimes being incorporated hinders you under local ordinances. For example, some rent control laws allow a property owner to evict a tenant from the rental property for landlord's own use (commonly referred to as "owner occupancy"). However, rent control laws in Los Angeles, Santa Monica and West Hollywood will not allow use of owner occupancy if the property's title is held by a corporation (or a partnership). This is true even if there is the corporation has one single shareholder and that shareholder will move into the unit after the tenant is evicted. These are clear instances where incorporation can be a disadvantage under the local ordinance.

Appearing in Lawsuits
In California, a corporation can appear in a lawsuit only through a licensed attorney. In fact, it is misdemeanor for a non-attorney to reprsent a corporation in a lawsuit. Therefore, if your corporation is sued or wishes to bring a lawsuit, you must first retain a lawyer before you can appear in the legal action. Moreover, if a corporation is not in good standing with the California Secretary of State, is will lack standing to appear in a lawsuit whether as a plaintiff or as a defendant. These restrictions do not apply to unincorporated entities such as sole proprietorships and general partnerships.

The subject of incorporation and selecting a proper business form is very expansive. For more information you can refer to Forming and Operating California Limited Liability Companies (published by Continuing Education of the Bar - California), or Advising California Partnerships (published by Continuing Education of the Bar - California), or consult your own attorney.

Robin Mashal is a partner at the law firm of Hong & Mashal, LLP, and can be reached at (310) 286-2000. His practice focuses on business law, real estate law and civil litigation. Hong & Mashal LLP is a California business law firm.