1. Palo Alto, CA May 1, 2013 Stuart M. Schabes, Esq. Ober, Kaler, Grimes & Shriver smschabes@ober.com 410-347-7696

2.  US/IRS Tax Compliance  Why should I care and why is it so complicated?  FATCA introduction  Current Climate of Aggressive IRS  What does FATCA compliance mean?  Israel and what’s next  Israel-US FATCA agreement and Israeli financial institutions’ response  Current US enforcement efforts 2

3.  Reporting my assets in Israel to the Internal Revenue Service – Form 8938  Am I eligible to participate in the OVDP?  What are my options?  How long does the process take  American Citizen – To be or not to be?  Expatriation  Updated FBAR Form  Questions and Answers 3

4.  IRS Acting Commissioner Steven Miller’s December 6 th remarks on cracking down on tax evasion  Taxpayers can expect to see “continued aggressive enforcement” and “aggressive investigations of individuals, promoters, and banks”  The IRS anticipates many more taxpayers joining the Offshore Voluntary Disclosure Program and the new “streamlined” program for foreign residents  The IRS “is looking at quiet disclosures for examination” and “quiet disclosures are at risk” 4

5.  Coordination of the United States Offshore Voluntary Disclosure Program (“OVDP”) and other countries  Effect of the IRS 2009, 2011 and 2012 OVDP – enormous database of information secured  Increased Transparency and Information Sharing  Non-compliance, then payment to foreign payee is subject to a 30% withholding 5

6. OVDP – (formerly called OVDI) FATCA FBAR 6

7. Foreign Account Tax Compliance Act  New Focus on Foreign Financial Institutions  Increased asset and income disclosure requirements on US citizens and Green Card holders 7

8.  Introduced on March 18, 2010 as part of Hire Incentives to Restore Employment Act of 2010 (HIRE)  Scope of FATCA is extremely broad  Primary purpose to reduce the compliance burden while maintaining the policy objective of improved information reporting on US persons with assets invested in non-US jurisdictions 8

9.  Effects almost every Foreign Financial Institution (“FFI”) including banks, custodians, brokers/dealers, private equity, hedge funds, insurance companies, certain pension plans, trust companies, some trustees and certain family offices (depending on the circumstances) 9

10.  Disclosure - certain FFI’s are required to file the information reports for the 2013 and 2014 calendar years not later than March 31, 2015  Withholding on payments (30%) to recalcitrant account holders or a non-participating FFI beginning in 2014 10

11.  Information about income on US accounts must be reported to the US beginning in 2016 (for the 2015 calendar year)  Complete information on US accounts including information about gross proceeds must be reported beginning in 2017 (for the 2016 calendar year) 11

12.  FATCA will require foreign financial institutions (“FFIs”) to report certain information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest  To properly comply with these new reporting requirements, either (i) an FFI will have to enter into a special agreement with the IRS or (ii) Agreement between US and Foreign Country (“IGA”)  Model 1 and Model 2 12

13.  Goal is to improve international tax compliance  The US is willing to reciprocate  US will automatically share information on accounts held in US financial institutions  Many countries are working towards a “common approach to FATCA” 13

14.  On November 8, 2012 Treasury announced that it is engaged with more than 50 countries around the world  Treasury Assistant Secretary for Tax Policy Mark Mazur  “We are intensifying our ability to combat tax evasion”  Agreement between US-Israel is still pending 14

15.  Israel is moving closer to reaching an agreement with the US  Israel Tax Authority director general Doron Arbeli recently met with IRS Action Commissioner Steven Miller  Israeli banks reportedly prefer a Model 1 FATCA agreement (the soft model)  The banks would only deal with the Israeli authorities  But the banks would have to share the identity of their clients 15

16.  Under a FATCA agreement, the US will also give information to Israel  At this point in the negotiations, the US will be required to give less information to Israel than Israel gives to the US 16

17.  Executed Form W-9/W-8BEN;  Confirmatory letters signed by accountholders (and beneficial owners) confirming that they are compliant with applicable US tax laws and that they have disclosed the existence of foreign bank accounts to the IRS;  Deed of Indemnity. 17

18.  Israeli Banks have blocked accounts of recalcitrant US persons;  Israeli Banks have sent information of US accounts to Israeli AML authority of recalcitrant account holders. 18

19.  Bank Transfers to the US beneficiary solely;  Bankers’ check to the beneficiary (mentioning “US Person”). 19

20.  Completed extensive questionnaire detailing existence of a US person whether directly or indirectly related to an account (even if the account holder is a non US related entity) 20

21. 21  Used to report a “specified person’s” foreign financial assets total value of all specified foreign financial assets in which an individual has an interest and meets certain thresholds.  Filed with the annual Federal Tax Return and must be filed by the due date (including extensions).

22. 22  A U.S. Citizen.  A resident alien of the United States for any part of the tax year (‘green card’ test or ‘substantial presence’ test).  A nonresident alien who elects to be treated as a resident alien for purposes of filing a joint income tax return.  Proposed Treasury Regulations issued that will require a domestic entity to file Form 8938.

23. 23 Aggregate value of all specified foreign financial assets on last day of the tax year is more than: OR at any time during the tax year is more than: Unmarried taxpayers living in the U.S. $50,000$75,000 Married taxpayers filing a joint return and living in the U.S. $100,000$150,000 Married taxpayers filing separate returns and living in the U.S. $50,000$75,000 Unmarried taxpayers living abroad $200,000$300,000 Married taxpayers filing a joint return and living abroad $400,000$600,000 Married taxpayers filing separate returns and living abroad $200,000$300,000

24. 24  Specified foreign financial assets include:  Financial accounts maintained by a foreign financial institution.  A financial account is any depository or custodial account maintained by a foreign financial institution (or one organized under laws of U.S. possessions) as well as any equity or debt interest in a foreign financial institution (other than interests that are regularly traded on an established securities market).

25. 25  Foreign Financial Assets include investments other than in an account maintained by a financial institution: 1.Stock or securities issued by someone that is not a U.S. person; 2.An interest in a foreign entity; 3.Stock issued by a foreign corporation; 4.A capital or profits interest in a foreign partnership

26. 26  Interest in a social security, social insurance, or other similar program of a foreign government is not included.

27. 27  Maximum value of a specified foreign financial asset means a “reasonable estimate” of the asset’s maximum fair market value during the taxable year.  Temporary Treasury Regulations §1.6038 D- 5T(b).  Foreign currency must first be converted to U.S. dollars and show the conversion rate.

28. 28  If asset is jointly owned with someone other than a spouse, each joint owner includes the entire value of the jointly owned asset.

29. 29  Failure to file a correct Form 8938 within 90 days after the IRS mails a notice.  The failure to file may subject an individual to a $10,000 penalty for each 30 day period.  After the 90 day period has expired the maximum penalty is $50,000.  Reasonable cause exception may be available.

30. 30  Revised Form (November 2011) requires taxpayers amending a previously filed FBAR to complete a new Form in its entirety as opposed to simply making the needed change and attaching a copy of the prior Form. No need to attach original Form.  Taxpayer must wait at least 120 days to amend the previously filed FBAR after the original was filed as opposed to waiting 90 days.

31. 31 Any United States person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

32. 32 2012 Offshore Voluntary Disclosure Initiative  Announced on January 9, 2012  Written guidance and updated FAQ’s were to be issued within approximately one month. It is anticipated that such information will be released in two (2) weeks or so.  No definitive deadline  Program can be “closed down” at any time

33. 33  2009 and 2011 programs were deemed very successful and offered consistency and predictability to taxpayers in determining the amount of tax and penalties they faced by coming forward voluntarily.  Major change – penalty amount increased to 27.5% instead of 25%  5% penalty for Foreign Resident will apply if specific criteria is satisfied as per FAQ 52 Part 3

34. 34 IRS OVDI Program – FAQ 52 Part 3 (Foreign Resident)  Taxpayer who is a foreign resident must meet the following three (3) tests to have the reduced 5% penalty: ◦ Taxpayer resides in a foreign country ◦ Made a good faith showing of timely complying with all tax, reporting and payment requirements in the country of residence ◦ Taxpayer has $10,000 or less of U.S. sourced income each year.  Most importantly the actually penalty will not apply to non- financial assets, including real property, business interest, or outwards purchase of funds for which the taxpayer “can establish that all applicable taxes have been paid, either in the U.S. or his country of residence.

35.  Compliance with U.S. tax return filings  FBAR documents filed by June 30 th of each year  Gift tax exclusion of $5.2M in 2013  Significant gift and estate tax planning opportunities in 2012  Use of defective Irrevocable Grantor Trusts  Traps for the unwary regarding U.S. located property as opposed to Israeli based property 35

36.  Continued criminal indictments/prosecutions relating to Foreign Accounts; will policy on extradition change over time?  2 recent situations where people were stopped by US immigration officials regarding outstanding tax liabilities 36

37.  Pending bill in Congress to deny entry if significant tax compliance issues  Still no ability for foreign lien or levy attachments- will this change with FATCA ?  Because of FATCA, there is increased dialogue between banks doing business in the US and the Treasury Department 37

38.  Employee vs. Independent Contractor  Covenants not to compete  How to secure capital gains treatment  Use of Section 83B election for certain stock received – pay tax now with benefits later  Question and Answers 38

39.  Employee – Federal and State employment taxes withheld, Federal and State unemployment taxes and benefits may be given  Independent Contractor (which means self employed) generally includes doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors who are in an independent trade or business wherein they offer their services to the general public.  Need to analyze the facts of each case to determine if the payer has the right to control or direct merely the result of the work and not what will be done and how it will be done. 39

40.  Net earnings of an independent contractor is subject to self employment tax  Self employment tax rate is a flat 15.3% -- for years 2011 and 2012 this rate was reduced by 2% to 13.3%. The rate includes 12.4% for Social Security and 2.9% for Medicare.  IRS Form SS-8 – determination of worker status for Federal Employment Taxes and Income Tax Withholding 40

41.  Treating an employee improperly as an Independent Contractor – new IRS voluntary classification settlement program  Optional program  Provides an opportunity to “reclassify” workers as employees for future tax periods – pay 10% of the employment tax liability on compensation paid to the workers for the most recent tax year 41