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The view of Jerusalem from Mount Scopus is quite amazing. If you find yourself in Jerusalem, you need to make your way to Machane Yehuda (“The Shuk”), which is a marketplace with hundreds of vendors, selling everything from art to authentic Middle Eastern food. If you like halva, the best in the world is here. I would suggest trying the halva milkshake. I would also suggest that you do not touch the Sabra with your hands, especially when an Israeli man is screaming, “Don’t Touch!” A Sabra is a prickly pear, like fruit that comes from a cactus and feels much like a cactus. Sabra also means “Native Israeli.”

The Western (Wailing) Wall is located in the heart of Jerusalem and has great meaning to Jewish people all over the world. People come here to pray and stick notes in the cracks of the wall. It is interesting to see how this historic wall affects the local Israelis and visitors from around the world.

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By Lonnie Bloom, MBA | 609.520.1188 | lbloom@withum.com

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tour ofTzfat is considered one of the holiest cities in the world. It is the center of the Kabbalah, a form of Jewish mysticism, and seems like one of the happiest places on earth. People come from all over the world to visit Tzfat and find their sense of spirituality. There are hostels where you can stay that only cost $150 a week. If you ever need a place to meditate, Tzfat is like no other.

By Lonnie Bloom, MBA | 609.520.1188 | lbloom@withum.com

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  • Israel is the size of New Jersey, but instead of miles and miles of the Turnpike, Israel has miles and miles of desert. Always carry water and wear a hat and sunscreen because the sun is hot!
  • I learned that no matter where you are in Israel you’ll always have a beautiful view of the desert, the Mediterranean Sea or a city. The pictures don’t do it justice.
  • Everyone carries a gun in Israel, which was just another cultural difference to get used to. I would see 18-year-old men and women carrying assault rifles throughout the day.
  • If you are an Israeli citizen it is mandatory to join the military. Men must serve three years and women serve two, however joining the military does not require you to be a soldier. You can hold any position in the military, including an accountant or a Zumba & fitness instructor, which is what one of the girls on our trip does on her base.
  • Expect to eat salad for breakfast and hummus on everything. Lunch options include Shawarma (similar to a gyro) or Falafel.

Fun Facts (2)

By Lonnie Bloom, MBA | 609.520.1188 | lbloom@withum.com

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This summer, I had the incredible opportunity to travel to Israel for 10 days through Taglit-Birthright. The Taglit-Birthright Foundation is a 501(c)(3) non-profit organization that provides financial support to the Birthright Israel program in North America. The program provides a free, 10-day educational trip to Israel for young Jewish adults between the ages of 18-26. Funding for these trips comes from many donors across the world, including small groups of committed philanthropists, individual donors and the Israel government. The program has sent over 400,000 Jewish young adults to Israel since they were founded in 1999. My experience in Israel was nothing short of amazing.

Israel 1As we all saw and read about in the news, I was traveling across the world to a country in the middle of a heated war, and needless to say, my family and friends were a little worried. Even though there were rockets flying from Gaza, I did not feel as though I was in a war zone. The trip was not meant for us to be in danger or to brainwash us into joining the military. Instead of feeling pressured in any way, I only felt a sense of excitement, culture shock and enjoyment. My group consisted of 22 Birthright travelers, three tour guides, an Israeli security guard and four Israeli military people. The group was originally supposed to have 40 travelers, but because of the situation in Israel, many people backed out. Not only did I meet new friends and experience a new culture, but I experienced some of the beauties of Israel that I will share weekly in my next five posts.

By Lonnie Bloom, MBA | 609.520.1188 | lbloom@withum.com

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iStock_000003264435LargeRecently, Treasury Secretary Jacob Lew sent a letter to key members of Congress calling for the nation to embrace a “new sense of economic patriotism” and stop supporting corporations that are moving their tax home out of the U.S. to reduce their corporate income tax burdens by taking advantage of an existing loophole in the tax code.

The loophole, known as “corporate inversion,” is a transaction where a U.S.-based multinational group acquires a foreign corporation located in a country whose tax rates are lower than in the U.S. These reorganizations have the effect of changing the U.S. corporation’s domicile to a foreign country but typically results in little change to the U.S. operations of the entity. Although operations in the U.S. would continue to be subject to U.S. tax, the foreign operations conducted by the newly formed group would be subject to the lower foreign country tax rates. In addition, the foreign income is not taxed to the U.S. shareholders until dividends are paid. Moreover, the U.S. corporation may engage in earnings stripping transactions where deductible payments to the parent company reduce U.S. taxable income.

These transactions are particularly attractive to pharmaceutical and medical device companies who seem to have more choices of appropriately sized targets overseas and enjoy many benefits of a global presence. Popular destinations seem to be Britain, Ireland and Bermuda for their lower tax rates and other attractive R&D incentives. Transactions involving pharma and medical device companies have spiked in recent years, most notably the recent merger of Medtronic and Covidien, the attempted acquisition by Pfizer of AstraZeneca, and the AbbVie takeover of Shire, the largest inversion deal to date.

Here’s a summary of how the proposed inversion of Pfizer might have worked:

A newly created UK holding company would acquire the shares of both Pfizer and AstraZeneca. In the resulting structure, Pfizer and AstraZeneca would be subsidiaries of the UK parent and the former Pfizer shareholders would own 73% of the UK company and AstraZeneca former shareholders would own 27%. Pfizer hoped to shift profits to the UK, where the tax rate is around 21% as compared to 35% in the U.S.

For similar types of inversion transactions like the one proposed in the Pfizer deal, the U.S. government has attempted to curb the use of these inversion transactions:

  • Where shareholders of the U.S. corporation subsequently acquire over 50% of the new foreign parent corporation, section 367(a) causes a gain on the transfer of U.S. stock to the parent corp.
  • Where shareholders of the U.S. corporation subsequently acquire 60% or more, but less than 80% of the new foreign parent corporation, section 7874 prevents the U.S. corporation from using tax attributes, such as NOLs, to offset section the 367(a) inversion gain.
  • Where shareholders of the U.S. corporation subsequently acquire 80% or more of the new foreign parent corporation, section 7874 treats the new foreign parent company as a U.S. corporation for tax purposes, effectively removing any real U.S. tax savings from the transaction.

In triangular reorganizations, section 367(b) and Notice 2014-32 causes a potential taxable dividend as a result of a “deemed” distribution between parent and subsidiary on the acquisition of the target foreign corporation in exchange for parent stock.

Under Pfizer’s proposed new structure, the corporation would not have been considered a U.S. corporation for tax purposes under section 7874 because less than 80% of the foreign parent company would be held by the former U.S. shareholders. The U.S. corporation might have had to pay tax under the other anti-abuse regulations of section 7874 and section 367, however it planned to save over $1 billion in tax due to the tax rate differential alone, according to some reports. In other inversion transactions, some corporations were able to avoid the imposition of section 367(a) inversion gain by manipulating certain aspects of section 367(b)(“Killer B reorganization” rules), in order to make the transaction nearly tax free. Much tax planning goes into achieving these various tax savings from moving overseas and the transactions can get very complicated.

The letter from Secretary Lew calls for a lowering of the U.S. corporate income tax rate, among the highest in the world. At the very least, he asks Congress to pass laws to prevent or deter companies from using these inversion strategies, including retroactive laws to prevent tax savings on restructuring deals already agreed to, such as the recent Shire takeover. Despite bipartisan disagreement on how to address the tax loophole, tax reform in this area is likely to occur in some form. However, many tax practitioners and financial experts believe that these transactions will continue to be used at an increased pace until real reform occurs to lower U.S. corporate tax rates. In the meantime, patriotism aside, corporate management will maintain its allegiance to its shareholders and continue to strive to improve the corporate bottom line in the ever-increasing global economy.

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Joseph_Ruppe_03Joseph Ruppe, CPA

Senior Manager


New York, NY



On July 8, 2014, The U.S. Department of Justice and the Internal Revenue Service (IRS) announced that a U.S. individual was sentenced to serve six months in prison and an additional six months and one day of home confinement for concealing more than $8 million in foreign bank accounts in India and Dubai.

According to the evidence presented in court, the U.S. taxpayer controlled several foreign bank accounts at HSBC in India and Dubai, including accounts held in the name of his wife and adult children. The taxpayer invested the funds in these accounts in certificates of deposit, which earned interest at rates as high as nine percent. The taxpayer funded these accounts by mailing checks from the United States and by transferring money from other undeclared bank accounts in Singapore and the United Kingdom to his family’s accounts in India.

In October 2013, a jury convicted the taxpayer of failing to report his family’s foreign bank accounts to the government on tax returns and Reports of Foreign Bank and Financial Accounts (FBAR). The jury also found that the taxpayer failed to report more than $1 million in interest income earned from these accounts between 2007 and 2009.

Prior to the sentencing hearing, the IRS assessed and demanded payment of a FBAR penalty against him for over $14 million.

U.S. persons must report their worldwide income on their taxes. In addition, they must file a FBAR annually if their offshore accounts total over $10,000 at any time.  If you have both failures, the IRS wants you to go into the Offshore Voluntary Disclosure Program. It involves reopening prior tax years, and paying taxes, interest and penalties, but no prosecution.

The IRS can assess a penalty on 50% of the highest balance in the account each year for willful failure to file the FBAR form. Therefore, the penalty can exceed the value in the account if the taxpayer does not file for several years.

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GuiltyThe U.S. Department of Justice and the IRS have announced that Credit Suisse AG pleaded guilty on May 19, 2014, to conspiracy to aid and assist U.S. taxpayers in filing false income tax returns with the IRS. With this guilty plea, Credit Suisse has admitted to knowingly and willfully aiding thousands of U.S. taxpayers in opening and maintaining undeclared foreign accounts as a means to conceal assets and income from the IRS for decades prior to and through 2009.

The guilty plea is a result of an investigation spanning several years by U.S. authorities. Another result of this investigation is the indictment of eight former executives of the Swiss corporation since 2011, of which two individuals have already pleaded guilty to U.S. tax evasion. The $2.6 billion payment to be made by Credit Suisse is the highest ever payment in a U.S. criminal tax case.

The terms of the plea agreement provide that Credit Suisse is to pay $1.8 billion to the DOJ for the U.S. Treasury, $100 million to the Federal Reserve, and $715 million to the New York State Department of Financial Services for a total of $2.6 billion. Credit Suisse also paid approximately $196 million of interest and penalties earlier this year to the Securities and Exchange Commission as a result of violating federal securities laws by not registering with the SEC before providing cross-border brokerage and investment advisory services to U.S. clients.

The violation of federal securities laws is just one of many on the long list of violations committed by Credit Suisse during the past few decades. The company also acknowledged assisting clients in using sham entities to hide undeclared accounts, failing to maintain records related to undeclared accounts in the U.S. and structuring transfers of funds to evade currency transaction reporting requirements, among other violations, to evade the payment of U.S. income tax as well as related reporting requirements.

The DOJ News Release of Credit Suisse’s guilty plea comes just in time as new reporting requirements through FATCA become imminent. Credit Suisse has agreed to make full disclosure of its cross-border activities as well as implement programs in order to be in compliance with reporting obligations as necessary under FATCA.


By Kathy Sikora, CPA | ksikora@withum.com | 609.520.1188

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