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.
Paul Manafort and Richard Gates indicted on 12 counts including tax crimes for failure report foreign income and failure to disclose overseas bank accounts
Paul Manafort and Richard Gates, two former top campaign officials for President Donald Trump, have been indicted on 12 counts, according to documents made public on October 30, 2017, making them the first people to be charged in special counsel Robert Mueller’s probe into 2016 foreign election interference. In a 31-page indictment, federal prosecutors alleged that Manafort and Gates engaged in unlawful activities ranging from money laundering to operating as unregistered foreign agents of the government of Ukraine to failing to disclose overseas bank accounts.
With respect to tax crimes, the indictment alleges that Manafort laundered over $18 million, income that investigators say was “concealed from the United States Treasury, Department of Justice, and others.” Gates, meanwhile, moved over $3 million through offshore accounts, prosecutors say. In total, over $75 million was discovered as a part of offshore transactions connected to the pair. These transactions investigators allege was their attempt to fail to report and pay income taxes on income that should have been reported and to fail to disclose overseas bank accounts.
Filing Requirements If You Have Foreign Accounts
By law, many U.S. taxpayers with foreign accounts exceeding certain thresholds must file Form 114, Report of Foreign Bank and Financial Accounts, known as the “FBAR.” It is filed electronically with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
Taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2015 must file FBARs. It is due by June 30 and must be filed electronically through the BSA E-Filing System website.
Generally, U.S. citizens, resident aliens and certain non-resident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds. Reporting thresholds vary based on whether a taxpayer files a joint income tax return or lives abroad. The lowest reporting threshold for Form 8938 is $50,000 but varies by taxpayer.
By law, Americans living abroad, as well as many non-U.S. citizens, must file a U.S. income tax return. In addition, key tax benefits, such as the foreign earned income exclusion, are only available to those who file U.S. returns.
The law requires U.S. citizens and resident aliens to report worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.
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?
Don’t delay because if the government finds out about you first, you could be in the same hot water as Paul Manafort and Richard Gates. 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. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Long Beach and other California locations 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.
U.S. Treasury Publishes Official FBAR Exchange Rates for 2014
Anyone filing an “FBAR” (Report of Foreign Bank and Financial Accounts – FinCEN Form 114) or IRS Form 8938 (Statement of Foreign Financial Assets) for calendar year 2014 will be pleased to know that the official exchange rates for 2014 have been published. As U.S. law states that no other exchange rate is permitted, it is really helpful to have these exchange rates available so early in January.
The rates for the major foreign currencies are listed below:
|
Country / Currency |
December 31, 2014 Official Exchange Rate To $1.00 |
|
Australia – Dollar |
1.2190 |
|
Canada – Dollar |
1.1580 |
|
China – Renminbi |
6.2050 |
|
Europe – Euro |
0.8220 |
|
Hong Kong – Dollar |
7.7560 |
|
India – Rupee |
63.2000 |
|
Israel-Shekel |
3.8810 |
|
Japan – Yen |
119.4500 |
|
Korea – Won |
1086.8700 |
|
Mexico – New Peso |
14.7020 |
|
New Zealand – Dollar |
1.2750 |
|
Singapore – Dollar |
1.3210 |
|
Switzerland – Franc |
0.9890 |
|
United Kingdom – Pound Sterling |
0.6420 |
Exchange rates for other currencies can be found by clicking here.
What is an FBAR?
Separate from United States income tax returns, many U.S. persons are required to file with the US Treasury a return commonly known as an “FBAR” (or Report of Foreign Bank and Financial Accounts; known as FinCEN Form 114), listing all non-US bank and financial accounts. These forms are required if on any day of any calendar year an individual has ownership of or signature authority over non-US bank and financial accounts with an aggregate (total) balance greater than the equivalent of $10,000.
These are separate to and in addition to United States income tax returns and are due to be filed by June 30th each year in relation to the previous calendar year. This date cannot be extended and putting your 2014 Form 1040 on extension does not change the June 30th filing deadline. The 2014 FBAR is due no later than June 30, 2015 and can only be filed electronically through the U.S. Financial Crimes Enforcement Network {FinCEN) which is a bureau of the U.S. Treasury Department that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes.
How The Government Examines Data From Your FBAR.
The electronic filing system on the FinCEN website is called the BSA E-Filing System (BSA standing for the Bank Secrecy Act) and it allows you to save changes to your form, track progress of the processing of your form and receive electronic notices. Either you or your tax preparer can file this form. By having your foreign account information submitted electronically to the U.S. Treasury, the government will be able to more quickly and effectively match this information to foreign sourced income reported on your current and past Federal income tax returns.
Discrepancies would be identified by the government’s computer and those taxpayers would be referred for examination or investigation by the IRS.
Big Penalties For Non-compliance – Jail-time Is Possible.
The penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes.
Failing to file an FBAR can carry a civil penalty of $10,000 for each non-willful violation. But if your violation is found to be willful, the penalty is the greater of $100,000 or 50% of the amount in the account for each violation—and each year you didn’t file is a separate violation. By the way the IRS can go back as far as 6 years to charge your with violations.
Go to Jail? Criminal penalties for FBAR violations are even more frightening, including a fine of $250,000 and 5 years of imprisonment. If the FBAR violation occurs while violating another law (such as tax law, which it often will) the penalties are increased to $500,000 in fines and/or 10 years of imprisonment. Many violent felonies are punished less harshly.
In assessing whether penalties are to be applied, especially willfulness, the IRS looks at such issues as inheritance, how other accounts are treated, etc. Although filing prospectively is easy, determining how to address past transgressions isn’t. With the option for taxpayers to include why FinCEN Form 114 for any prior year is being filed late, taxpayers may be tempted to use this option in an attempt to come into compliance for failing to report foreign income on prior year’s income tax returns and/or failing to disclose foreign bank accounts. Beware that such disclosure does not protect you from the heavy fines and possible criminal charges.
What Should You Do?
If you have not reported your foreign income and you have not disclosed your foreign bank accounts, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Program (OVDP) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS. 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 San Francisco, Los Angeles, 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.
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