IRS offshore cannabis bitcoin investigation

IRS Establishes New Criminal Investigation Group Using Big Data Analytics to Crack Down on Offshore, Bitcoin and Cannabis Tax Evasion

Why Taxpayers Involved In Offshore Accounts, Crypto Currency Or Cannabis Should Be Filing An Extension For Their 2017 Income Tax Returns

Why Taxpayers Involved In Offshore Accounts, Crypto-Currency Or Cannabis Should Be Filing An Extension For Their 2017 Income Tax Returns

The Door Is Closing – IRS To End Offshore Voluntary Disclosure Program.

Taxpayers with undisclosed foreign assets are urged to come forward before the Offshore Voluntary Disclosure Program (“OVDP”) closes September 28, 2018.

The IRS announced on March 13, 2018 that it will begin to ramp down the 2014 Offshore Voluntary Disclosure Program (“OVDP”) and close the program on September 28, 2018. In a statement made by Acting IRS Commissioner David Kautter, “Taxpayers have had several years to come into compliance with U.S. tax laws under this program. All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”

OVDP enables U.S. taxpayers to voluntarily resolve past non-compliance related to unreported foreign financial assets and failure to file foreign information returns. Since OVDP’s initial launch in 2009, more than 56,000 taxpayers have come forward to avoid criminal prosecution and secure lesser penalties than what the law provides. The IRS reports that through OVDP, they have collected $11.1 billion in back taxes, interest and penalties. The number of taxpayer disclosures under the OVDP peaked in 2011, when about 18,000 people came forward. The number steadily declined through the years, falling to only 600 disclosures in 2017. This decrease is not surprising given that many people have already come forward to secure the benefits of OVDP seeing the success of the implementation of the Foreign Account Tax Compliance Act (“FATCA”) and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations with respect to undisclosed foreign financial assets and unreported foreign income. 

Tax Enforcement Continues

Stopping offshore tax noncompliance remains a top priority of the IRS. Don Fort, Chief, IRS Criminal Investigation stated that the IRS will continue ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics. Since 2009, the IRS Criminal Investigation has indicted 1,545 taxpayers on criminal violations related to international activities, of which 671 taxpayers were indicted on international criminal tax violations.

Where a taxpayer does not come forward into OVDP and has now been targeted by IRS for failing to file FBAR’s, the IRS may now assert FBAR penalties that could be either non-willful or willful.  Both types have varying upper limits, but no floor.  The first type is the non-willful FBAR penalty.  The maximum non-willful FBAR penalty is $10,000.  The second type is the willful FBAR penalty.  The maximum willful FBAR penalty is the greater of (a) $100,000 or (b) 50% of the total balance of the foreign account.  In addition the IRS can pursue criminal charges with the willful FBAR penalty. The law defines that any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).

For the non-willful penalty, all the IRS has to show is that an FBAR was not filed.  Whether the taxpayer knew or did not know about the filing of this form is irrelevant.  The non-willful FBAR penalty is $10,000 per account, per year and so a taxpayer with multiple accounts over multiple years can end up with a huge penalty.

Streamlined Procedures and Other Options

A separate program, the Streamlined Filing Compliance Procedures, for taxpayers who might not have been aware of their filing obligations, has helped about 65,000 additional taxpayers come into compliance. The Streamlined Filing Compliance Procedures will remain in place and available to eligible taxpayers. Additionally, eligible taxpayers can qualify for relief under the Delinquent FBAR Submission Procedures or Delinquent International Information Return Submission Procedures.

What Should You Do?

Don’t let another deadline slip by! If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed you should seriously consider participating in the IRS’ 2014 Offshore Voluntary Disclosure Program (“OVDP”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law.

Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

Peru Joins FATCA

Peru Becomes 114th Country to Sign FATCA Accord.

Under the Foreign Account Tax Compliance Act (“FATCA”), foreign banks, insurers and investment funds must send the Internal Revenue Service information about Americans’ and U.S. permanent residents’ offshore accounts worth more than $50,000. Institutions that fail to comply could effectively be frozen out of U.S. markets. The U.S. has entered into intergovernmental Agreements (“IGA’s”) with 113 countries for the implementation of FATCA.

Peru has now signed on to FATCA which requires Peruvian financial institutions to report information about U.S. customers’ accounts for transmission to the IRS. Peru becomes the 114th country to join this accord and the 14th Latin American country to join the accord along with Argentina, Belize, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Mexico, Panama, and Uruguay. All of these countries’ participation has a huge significance here in California given the large portion of the State’s population having connections to these countries.

Application to the United States

FATCA was enacted into law in 2010 as a way to help combat tax evasion by requiring foreign financial institutions to provide financial information on U.S. account holders or face severe monetary penalties collected from investments here in the U.S. The overwhelming acceptance of foreign countries to participate in FATCA means that the U.S. will be able to have an inflow of information from all countries regarding tax matters and therefore those with unreported foreign financial accounts are in even greater danger of penalties and possible prosecution by the IRS.

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

Penalties for Non-Compliance.

Civil Fraud – If your failure to file is due to fraud, the penalty is 15% for each month or part of a month that your return is late, up to a maximum of 75%.

Criminal Fraud – Any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).

The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).

Additionally, the penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. For non-willful violations, it is $10,000.00 per account per year going back as far as six years. For willful violations, the penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

Lastly, failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40% penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.

Voluntary Disclosure

The IRS has special programs for taxpayers to come forward to disclose unreported foreign accounts and unreported foreign income. The main program is called the Offshore Voluntary Disclosure Program (OVDP). OVDP offers taxpayers with undisclosed income from offshore accounts an opportunity to get current with their tax returns and information reporting obligations. The program encourages taxpayers to voluntarily disclose foreign accounts now rather than risk detection by the IRS at a later date and face more severe penalties and possible criminal prosecution.

For taxpayers who willfully did not comply with the U.S. tax laws, we recommend going into the 2014 Offshore Voluntary Disclosure Program (OVDP). Under this program, you can get immunity from criminal prosecution and the one-time penalty is 27.5% of the highest aggregate value of your foreign income producing asset holdings.

For taxpayers who were non-willful, we recommend going into the Streamlined Procedures of OVDP. Under these procedures the penalty rate is 5% and if you are a foreign person, that penalty can be waived. This is a very popular program and we have had much success qualifying taxpayers and demonstrating to the IRS that their non-compliance was not willful.

What Should You Do?

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, San Jose and elsewhere in California help ensure that you are in compliance with federal tax laws.

IRS Issues Fall 2016 Report Card On OVDP Milestones And FACTA Implementation

IRS Issues Fall 2016 Report Card On OVDP Milestones And FACTA Implementation

IRS Issues Fall 2016 Report Card On OVDP Milestones And FACTA Implementation

Offshore Compliance Programs For Taxpayers With Undisclosed Foreign Bank Accounts Generate $10 Billion andMore Than 100,000 U.S. Taxpayers Come Back into Compliance In Reporting Foreign Accounts;IRS Urges People to Take Advantage of Voluntary Disclosure Programs

The IRS announced on October 21, 2016 that 55,800 taxpayers have come into the Offshore Voluntary Disclosure Program (OVDP) to resolve their tax obligations, paying more than $9.9 billion in taxes, interest and penalties since 2009. In addition, another 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and meet their federal tax obligations, paying approximately $450 million in taxes, interest and penalties.

What that means is that the IRS has collected a combined $10 billion with 100,000 taxpayers coming back into compliance.  Furthermore, as the IRS continues to receive more information on foreign accounts, it will be more difficult for U.S. taxpayers to avoid detection and to maintain that they were non-willful in not complying with the U.S. tax laws.

Under the Foreign Account Tax Compliance Act (FATCA) and the network of inter-governmental agreements (IGAs) between the U.S. and other countries, automatic third-party account reporting has entered its second year. Also, more information also continues to come to the IRS as a result of the Department of Justice’s Swiss Bank Program. As part of a series on non-prosecution agreements, the participating banks continue to provide information on potential non-compliance by U.S. taxpayers.

OVDP offers taxpayers with undisclosed income from foreign financial accounts and assets an opportunity to get current with their tax returns and information reporting obligations. The program encourages taxpayers to voluntarily disclose foreign financial accounts and assets now rather than risk detection by the IRS at a later date and face more severe penalties and possible criminal prosecution.

The IRS also developed the Streamlined Filing Compliance Procedures to accommodate taxpayers with non-willful compliance issues. Submissions have been made by taxpayers residing in the U.S. and from those residing in countries around the globe. The streamlined procedures have resulted in the submission of more than 96,000 delinquent and amended income tax returns from the 48,000 taxpayers using these procedures. A separate process exists for those taxpayers who have paid their income taxes but omitted certain other information returns, such as the Report of Foreign Bank and Financial Accounts (FBAR).

What Should You Do?

We encourage taxpayers who are concerned about their undisclosed offshore accounts to come in voluntarily before learning that the U.S. is investigating the bank or banks where they hold accounts. By then, it will be too late to avoid the new higher penalties under the OVDP of 50% percent – nearly double the regular maximum rate of 27.5% and 10 times more than the 5% rate offered in the expanded streamlined procedures.

Don’t let another deadline slip by. If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed or you are in the 2012 Offshore Voluntary Disclosure Initiative (“OVDI”), you should seriously consider participating in the IRS’s 2014 Offshore Voluntary Disclosure Program (“OVDP”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California qualify you for OVDP.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

America’s Manifest Destiny Still Lives On Today As FATCA Imposes Our Will On Banking Worldwide

In the 19th century, Manifest Destiny was a widely held belief in the United States that American settlers were destined to expand throughout the continent. Historians have for the most part agreed that there are three basic themes to Manifest Destiny: the special virtues of the American people and their institutions; America’s mission to redeem and remake the west in the image of agrarian America; and an irresistible destiny to accomplish this essential duty. This spirit has endured into the 21st century with the application of FATCA over worldwide banking activity.

Never heard of FATCA? You will.

FATCA—the Foreign Account Tax Compliance Act—is America’s global tax law. It was quietly enacted in 2010. And after a four-year ramp up, it is finally in full effect. What is most amazing is not its impact on Americans—although that is considerable—but its impact on the world. Yes, the whole world.

Never before has an American tax law attempted such an astounding reach. And it is clear FATCA has succeeded, after shrewd diplomacy by President Obama and his Treasury Department. FATCA requires foreign banks to reveal Americans to the Department Of Treasury and the IRS with accounts over $50,000. Non-compliant institutions could be frozen out of U.S. markets, so everyone is complying.

Ten Essential Facts About FATCA:

1FATCA Blew In On a Perfect Storm. FATCA grew out of a controversial rule. America taxes its citizens—and even permanent residents—on their worldwide income regardless of where they live. In 2009, the IRS struck a groundbreaking deal with the Swiss banking giant UBS for $780 million in penalties and American names. Recently, Credit Suisse took a guilty plea and paid a record $2.6 billion fine. Since then, all 106 Swiss banks accepted a U.S. Department Of Justice (DOJ) deal and with many other subsequent developments, banking is now more transparent than could ever have been imagined. FATCA was enacted in 2010, when only some of those developments were unfolding. The idea was to cut off companies from access to critical U.S. financial markets if they didn’t pass along American data. And boy did that idea work.

2. Everyone Around the World is Complying. More than 80 nations—including virtually every one that matters—have agreed to the law. As for those few rouge nations that remain that have not signed on, I would question how safe is your money anyways in those countries. So far, over 77,000 financial institutions have signed on too. Countries must throw their agreement behind the law or face dire repercussions. Even tax havens have joined up. The IRS is so proud of this accomplishment that it maintains a searchable list of financial institutions on its website. Click here to check out this list.

3Even Russia and China Agreed to FATCA. If you think money anywhere can escape the IRS, think again. Even notoriously difficult China and Russia are on board. Which is more amazing? Probably Russia. The U.S. and Russia were negotiating a FATCA deal until March, 2014, but Russia’s annexation of Crimea caused the U.S. to suspend talks. That meant Russian financial institutions faced being frozen out of U.S. markets. Russia took last minute action to allow Russian banks to send American taxpayer data to the U.S. when President Vladimir Putin Signed a Law in the 11th Hour to Satisfy U.S. Treasury. By the way, now that the embargo on Cuba has been lifted, the U.S. Treasury will be looking for Cuba to promptly sign on to FATCA as a condition for opening banking relationships.

4FATCA is America’s Big Stick. Cleverly, FATCA’s 30% tax and exclusion from U.S. markets would be so catastrophic that everyone has opted to comply. Foreign financial institutions must withhold a 30% tax if the recipient is not providing information about U.S. account holders. The choice is simple, and that’s why everyone is complying.

5Everyone is on the Lookout for American Indicia. Foreign Financial Institutions (FFI’s) must report account numbers, balances, names, addresses, and U.S. identification numbers. For U.S.-owned foreign entities, they must report the name, address, and U.S. TIN of each substantial U.S. owner. And in what is a kind of global witch hunt, American indicia will likely mean a letter. Don’t ignore it.

6FBAR’s Are Still Required. FBAR’s predate FATCA, but get ready for duplicate reporting. FATCA just adds to the burden, including Form 8938, but it doesn’t replace FBAR’s. The latter have been in the law since 1970 but have taken on huge importance since 2009. U.S. persons with foreign bank accounts exceeding $10,000 must file an FBAR by each June 30. These forms are serious, and so are the criminal and civil penalties. FBAR failures can mean fines up to $500,000 and prison up to ten years. Even a non-willful civil FBAR penalty can mean a $10,000 fine. Willful FBAR violations can draw the greater of $100,000 or 50% of the account for each violation–and each year is separate. The numbers add up fast. Court Upholds Record FBAR Penalties, Exceeding Offshore Account Balance.

7FATCA is Compelling Compliance. U.S. account holders who are not compliant have limited time to get to the IRS. The IRS recently changed its programs, making its Offshore Voluntary Disclosure Program a little harsher. Yet for those not willing to pay the 27.5% penalty—which rose to 50% August 4, 2014 for some banks—the new IRS’s Streamlined Program may be a good option for those who qualify. The latter applies now to both foreign and U.S.-based Americans. Some still want to amend their taxes and file FBAR’s in a “quiet disclosure” which could bring civil FBAR penalties or even prosecution. Thus, caution is clearly in order.

8Banking Will Never Be the Same. FATCA is making banking transparent worldwide. With Swiss bank deals, prosecutions, John Doe Summonses, and FATCA, the IRS has quicker, better and more complete information than ever.

9Forget Repeal or Dismantling FATCA. Republicans have mounted a lackluster repeal effort, but there’s no serious push to repeal FATCA. Some say FATCA will be like prohibition, lasting for a time but doomed. We’ll see, but it sure doesn’t look that way now.

10Don’t Count on Other Passports. Some dual nationals or U.S. Green Card holders think they can bypass FATCA—and other U.S. tax rules—by using a non-U.S. passport and non-U.S. address with their foreign bank. Don’t succumb to this – you may just make it worse, handing the IRS another badge of willfulness. Your bank and the IRS will likely find out eventually, even if not right away.

Why You Should Do Something About It Before It’s Too Late

Until the government receives your name and account information and chooses to act on that information, you have the opportunity to avoid the possibility of time in a federal prison and reduce the potential civil penalties for failing to report your foreign account. If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed, you should seriously consider participating in the IRS’s 2014 Offshore Voluntary Disclosure Program (“OVDP”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California qualify you for OVDP.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

Don’t Believe The Seven Deadly Myths Of FATCA Non-Enforcement.

This May Be Your One Last Opportunity to Avoid Criminal Prosecution and Increased Civil Penalties!

Since July 1, 2014, the most feared U.S. legislation regarding international tax enforcement – Foreign Account Tax Compliance Act (“FATCA”) – is being implemented by most banks around the world. As part of this compliance, foreign banks from around the world are sending letters to account holders that they believe have, or had, a U.S. tax nexus (or other U.S. connection) requesting information to determine whether such account holders have disclosed their foreign bank accounts to the IRS. The letters from foreign banks generally require an account holder to disclose whether the account has been declared to the IRS through the filing of a Report of Foreign Bank and Financial Accounts (commonly known as the “FBAR”) form and/or a Form 1040 personal income tax return, participation in the various IRS Offshore Voluntary Disclosure Programs, or otherwise. Sometimes foreign banks request that the account holder submit an IRS Form W-9 or W-8BEN, which is generally required to be completed by U.S. account holders for tax reporting purposes.

What Is FATCA?

FATCA was signed into law in 2010 and codified in Sections 1471 through 1474 of the Internal Revenue Code. The law was enacted in order to reduce offshore tax evasion by U.S. persons with undisclosed offshore accounts. There are two parts to FATCA – U.S. taxpayer reporting of foreign assets and income on Form 8938 and reporting by a Foreign Financial Institution (“FFI”) of foreign bank and financial accounts to the IRS.  It is the latter that is resulting in FFI’s sending out that dreaded letter to suspected U.S. account holders requesting U.S. taxpayer identification and information (referred hereafter as the “FATCA letter”).

FATCA generally requires an FFI to identify certain U.S. accountholders and report their accounts to the IRS. Such reporting is done either through an FFI Agreement directly to the IRS or through a set of local laws that implement FATCA.

If an FFI refuses to do so or otherwise does not satisfy these requirements (and is not otherwise exempt), U.S.-source payments made to the FFI may be subject to withholding under FATCA at a rate of 30%. Note that FATCA information reporting and withholding requirements generally do not apply to FFI’s that are treated as “deemed-compliant” because they present a relatively low risk of being used for tax evasion or are otherwise exempt from FATCA withholding.

Seven Deadly Myths.

As foreign banks march inexorably towards the implementation of FATCA, there are still many people who subscribe to any one or all of the seven deadly myths that could find themselves facing potentially crippling circumstances after July 1, 2014. For safety’s sake, we get down to brass tacks and present the facts below – in plain language – to debunk these myths.

Myth 1: No action required now.

This is false. As of July 1, 2014 all FFI’s must have implemented a FATCA Compliance Program to comply with its country’s Intergovernmental Agreement (“IGA”) with the United States. FFI’s must self-certify their FATCA status [Chapter 4 of the U.S. Internal Revenue Code] to their withholding agents by either providing a Global Intermediary Identification Number (GIIN) or new IRS Form W-8BEN-E/W-8IMY prior to this date.

Myth 2: Best to “wait and see” for a foreign country’s enabling legislation.

This is false. Wishing this to be the case does not make this so. To be clear, registration and reporting are distinct functions under FATCA. All FATCA registration is directly with the IRS and is occurring now.

Registration with the IRS is free of cost and mandatory for any FFI to become registered deemed-compliant under its country’s IGA. Only the IRS has the power to register a FFI and issue a GIIN. Enabling legislation by the foreign country is irrelevant to FATCA registration for FFI’s as no foreign country revenue authority has – or will ever have – the power to register a FFI and issue a GIIN. Again, we emphasize, this must be done directly with and by the IRS.

The truth is, a foreign country’s enabling legislation is simply intended to provide the legal framework for compliance with, not avoidance of FATCA (and other automatic tax information exchange agreements), and the development of the regulatory framework for operating the agreement.

Myth 3: IRS registration may breach confidentiality.

This is false. Withholding agents already require W-8s from all FFI’s to avoid withholding liability. This is a long-established practice and the Form W-8 has simply now been revised to include FATCA status. A FFI must self-certify, under penalty of perjury, its FATCA status to withholding agents using the new W-8 before July 1, 2014. To obtain a GIIN, a FFI must file Form 8957 via the IRS Foreign Financial Institution Registration System (FRS) (or manually). Once the GIIN is obtained, it can be verified by withholding agents via FRS or submitted via Form W-8. There are no material differences between the information disclosed, or commitments made, under Form W-8 and Form 8957. Both forms are complementary and require basic identifying information about the FFI. Specific investor information is never disclosed.

Myth 4: Certain foreign investment funds may be exempted as sponsored entities.

This is false. Sponsored entity exemption would require all the sponsored FFI’s of the sponsor to use a single GIIN. If any FFI using the sponsored GIIN becomes FATCA non-compliant – for any reason – all FFI’s using the same GIIN would also become non-compliant.

Myth 5: Model 1 or Model 2 IGA’s displace U.S. Treasury Regulations.

This is false. They both work in tandem. A FFI is treated as FATCA-compliant, and not subject to FATCA withholding tax, to the extent it complies with its obligations under the IGA. The U.S. Treasury regulations are incorporated by reference into the IGA. Under the IGA, the foreign country is bound to use U.S. Treasury definitions to the extent those definitions are not defined by the IGA, and importantly, the foreign country is not permitted to use any other definition in local legislation that would “frustrate the purposes” of the IGA.

Myth 6: There is no person charged with the responsibility that a foreign bank complies with the IGA.

This is false. Under the IGA a FATCA Responsible Officer (FRO) must be appointed who is (a) as an officer of the registered deemed-compliant FFI with sufficient authority to ensure that the FFI meets the applicable registration requirements and (b) who certifies that the FFI will comply with its continuing FATCA obligations.

Myth 7: There is no incentive for FRO’s to ensure a foreign bank’s compliance under an IGA.

This is false. FRO’s have serious compliance responsibilities under FATCA. In fact, FATCA compliance revolves around the FRO, like Sarbanes Oxley compliance revolves around the CFO. Especially in the context of a FFI that does not typically have any staff, the role is even more essential. It’s a fallacy and wishful thinking that FROs can be lax or “lite” under the IGA. The IRS has consistently expressed its expectations that FRO’s deliver robust FATCA compliance and high-quality FATCA information from either procedure. Whoever says otherwise has not been paying attention and we all know how this story ended for Switzerland. Key considerations for a FRO under the IGA include:

  • Willfully submitting any fraudulent or materially false document to the IRS is a Federal offence. [IRC §§7206(2) & 7207]
  • FFI’s self-certification as a Reporting Financial Institution to withholding agents will entail signing the IRS Form W-8 under penalties of perjury.

The Truth About FATCA.

Whether out of lack of knowledge, preparedness or self-interest, those who are propagating these myths are not doing themselves or their U.S. clients any favors. As of July 1, 2014, FATCA went into full effect, which means that FFI’s now have to report the required FATCA information to the IRS. Many FFI’s are making a full effort to comply with FATCA. As part of this effort, FFI’s around the world have been sending out “FATCA letters”. A FATCA letter is basically a letter from your bank or other financial institution which introduces FATCA to their customers and asks them to provide answers to a various set of questions aiming to find out information specific to FATCA compliance. Often, instead of asking all of these questions directly a FATCA letter would simply list out a series of forms that contain these questions such as IRS Forms W-9 and W-8BEN.

The information furnished by the customer to the bank would then be used by the bank to report information on the customer’s foreign accounts to the IRS. If the customer refuses to answer the questions or provide the necessary forms, the financial institution would often close the account and report it as a “recalcitrant account” to the IRS. Once that is done, the government will look to see if your account ever had in excess of a $10,000 balance. If it did and you did not report it on an FBAR or on your federal income taxes, the case will likely be referred to the IRS Criminal Investigation Division. At that point, the government will begin to build a case against you. A U.S. citizen can be sentenced up to five years in prison for each year that they willfully failed to file an FBAR and can be penalized up to 50% of the balance of the foreign account for each year that they willfully failed to report (up to 250% of the account’s balance). The civil penalties alone can easily reach double the amount of the balance of the account in question.

Why You Should Do Something About It Before It’s Too Late

Until the government receives your name and account information and chooses to act on that information, you have the opportunity to avoid the possibility of time in a federal prison and reduce the potential civil penalties for failing to report your foreign account. If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed, you should seriously consider participating in the IRS’s 2014 Offshore Voluntary Disclosure Program (“OVDP”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California qualify you for OVDP.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

Did You Receive A Letter From Your Foreign Bank, Urging You To Report Your Account To The U.S. Government Under FATCA?

This May Be Your One Last Opportunity to Avoid Criminal Prosecution and Increased Civil Penalties!

Since July 1, 2014, the most feared U.S. legislation regarding international tax enforcement – Foreign Account Tax Compliance Act (“FATCA”) – is being implemented by most banks around the world. As part of this compliance, foreign banks from around the world are sending letters to account holders that they believe have, or had, a U.S. tax nexus (or other U.S. connection) requesting information to determine whether such account holders have disclosed their foreign bank accounts to the IRS. The letters from foreign banks generally require an account holder to disclose whether the account has been declared to the IRS through the filing of a Report of Foreign Bank and Financial Accounts (commonly known as the “FBAR”) form and/or a Form 1040 personal income tax return, participation in the various IRS Offshore Voluntary Disclosure Programs, or otherwise. Sometimes foreign banks request that the account holder submit an IRS Form W-9 or W-8BEN, which is generally required to be completed by U.S. account holders for tax reporting purposes.

What is FATCA?

FATCA was signed into law in 2010 and codified in Sections 1471 through 1474 of the Internal Revenue Code. The law was enacted in order to reduce offshore tax evasion by U.S. persons with undisclosed offshore accounts. There are two parts to FATCA – U.S. taxpayer reporting of foreign assets and income on Form 8938 and reporting by a Foreign Financial Institution (“FFI”) of foreign bank and financial accounts to the IRS.  It is the latter that is resulting in FFI’s sending out that dreaded letter to suspected U.S. account holders requesting U.S. taxpayer identification and information (referred hereafter as the “FATCA letter”).

FATCA generally requires an FFI to identify certain U.S. accountholders and report their accounts to the IRS. Such reporting is done either through an FFI Agreement directly to the IRS or through a set of local laws that implement FATCA.

If an FFI refuses to do so or otherwise does not satisfy these requirements (and is not otherwise exempt), U.S.-source payments made to the FFI may be subject to withholding under FATCA at a rate of 30%. Note that FATCA information reporting and withholding requirements generally do not apply to FFI’s that are treated as “deemed-compliant” because they present a relatively low risk of being used for tax evasion or are otherwise exempt from FATCA withholding.

FATCA Implementation and the FATCA Letter

As of July 1, 2014, FATCA went into full effect, which means that FFI’s now have to report the required FATCA information to the IRS. Many FFIs are making a full effort to comply with FATCA. As part of this effort, FFIs around the world have been sending out “FATCA letters”. A FATCA letter is basically a letter from your bank or other financial institution which introduces FATCA to their customers and asks them to provide answers to a various set of questions aiming to find out information specific to FATCA compliance. Often, instead of asking all of these questions directly a FATCA letter would simply list out a series of forms that contain these questions such as IRS Forms W-9 and W-8BEN.

The information furnished by the customer to the bank would then be used by the bank to report information on the customer’s foreign accounts to the IRS. If the customer refuses to answer the questions or provide the necessary forms, the financial institution would often close the account and report it as a “recalcitrant account” to the IRS.

Impact of FATCA Letter on US Taxpayers with Undisclosed Accounts

A FATCA letter may have a very profound impact on a U.S. taxpayer with foreign accounts which were not properly disclosed to the IRS (usually on the FBAR and/or Form 8938).

First, a FATCA letter puts the taxpayer on notice that he is required to report his foreign financial accounts and foreign income to the IRS. This may have a big impact on whether the taxpayer can later certify his non-willfulness for the purposes of the Streamline Filing Compliance Procedures.

Second, a FATCA letter starts the clock for the taxpayer to beat the bank’s disclosure of his account to the IRS. If the taxpayer intends to participate in the IRS Offshore Voluntary Disclosure Program (“OVDP”), it is imperative that he files his Pre-Clearance Request before the IRS finds out about his non-compliance with respect to his foreign accounts. If the latter occurs, the taxpayer may not be able to enter the OVDP.

In essence, receiving a FATCA letter forces the taxpayer to quickly choose the path of his voluntary disclosure under significant time pressure.

Potential Life-Altering Consequences

These letters are not something to balk at. Generally, receiving this letter is an indication that your foreign bank is preparing to release your information to the IRS. Once that is done, the government will look to see if your account ever had in excess of a $10,000 balance. If it did and you did not report it on an FBAR or on your federal income taxes, the case will likely be referred to the IRS Criminal Investigation Division. At that point, the government will begin to build a case against you. A U.S. citizen can be sentenced up to five years in prison for each year that they willfully failed to file an FBAR and can be penalized up to 50% of the balance of the foreign account for each year that they willfully failed to report (up to 250% of the account’s balance). The civil penalties alone can easily reach double the amount of the balance of the account in question.

Why You Should Do Something About it Before it’s Too Late

If you have received this type of letter from your foreign bank, it’s not too late. Until the government receives your name and account information and chooses to act on that information, you have the opportunity to avoid the possibility of time in a federal prison and reduce the potential civil penalties for failing to report your foreign account. If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed or in 2012 OVDI, you should seriously consider participating in the IRS’s 2014 Offshore Voluntary Disclosure Program (“OVDP”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California qualify you for OVDP.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.