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, 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.
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.
People who have undisclosed income in offshore accounts can — and frankly, should — take advantage of the IRS’s Offshore Voluntary Disclosure Program (OVDP).
As the term suggests, the program allows taxpayers to voluntarily disclose all foreign accounts and fully clear their tax liability (including taxes owed, interest and penalties), instead of risk getting flagged in the future and paying much steeper price. While the IRS treats each case individually, penalties for failing to report offshore accounts start at 50 percent of the balance. Furthermore, if there is suspected fraud or tax evasion, criminal prosecutions can commence.
Although the OVDP has been around since 2009, there remains a significant amount of misinformation and misunderstanding regarding how it works — and just as importantly, how it doesn’t work. Here are four costly OVDP myths that persist: Read more
Important announcement to U.S. taxpayers that opened offshore bank accounts through a company called Sovereign Management & Legal, Ltd. Based in Panama, the company offers to help Americans open offshore bank accounts with nominee corporations. Knowing that many people who do take these actions are also committing tax evasion, the IRS and Justice Department obtained a John Doe summons from a federal judge. The IRS hopes to find Americans who used Sovereign to open accounts.
Federal Court Approves U.S. Government Issuance Of John Doe Summonses
A Federal Judge recently approved the Internal Revenue Service’s issuance of what is known as a “John Doe” summons to several entities in the U.S who utilized the services of Sovereign Management & Legal Ltd. (“Sovereign”). These entities include FedEx, DHL, UPS, Western Union, the Federal Reserve Bank of New York, Clearing House Payments Company LLC and HSBC USA. According to Sovereign’s website and the government’s Petition filed with the U.S. District Court for the Southern District of New York, Sovereign provides Offshore Banking, Corporation and Trust services. The U.S. government alleges that U.S. taxpayers used those services to conceal ownership of assets held offshore to evade U.S. taxation.
A “John Doe” summons may be issued when the government is unsure of the exact identity of the person(s) for whom they are seeking the information. These summonses seek information that the government cannot procure through the Foreign Account Tax Compliance Act (“FATCA”) and serves as the latest effort in the IRS’s recent push to achieve global tax compliance from its citizens. FATCA, enacted by Congress in March of 2010, requires foreign financial institutions to report certain information about U.S. taxpayer held foreign financial accounts or foreign entities in which U.S. taxpayers hold a substantial ownership interest.
In the context of offshore financial holdings, the government has recently issued John Doe summonses to a number of financial institutions requesting account information for U.S. taxpayers with ownership or signature authority over foreign accounts without knowing the names of the specific taxpayers whose information it is seeking. For a John Doe summons to be approved, the government is required to make a showing in court that (1) the summons relates to a particular person or ascertainable group, (2) there is a reasonable basis for believing that such person or group may have failed to comply with any provision of the internal revenue law, and (3) the information sought is not readily available from other sources.
The Federal District Court found that the government met its burden with respect to these requests. For example regarding the courier companies named in the Summons, the government believes that the John Doe summonses will assist them in identifying U.S. clients of Sovereign through records of shipping services between Sovereign and taxpayers in the U.S.
HSBC USA is among the entities named in the government’s Petition because of its correspondent bank accounts held at the bank by HSBC Hong Kong and HSBC Panama. The correspondent account provides banking services to the foreign bank that does not have a U.S. branch so that the foreign bank may reach U.S. customers. The government alleges that HSBC USA’s records relating to the correspondent accounts will assist the government in determining the identity of Sovereign’s clients who held accounts with HSBC Hong Kong and HSBC Panama through wire transfer information and cancelled checks retained by HSBC USA.
The government’s Petition further requests authority to issue summonses to gather wire and electronic fund transfer information from the New York Federal Reserve, Western Union and Clearing House Payments Company. According to the Petition, the New York Federal Reserve Bank maintains the primary electronic funds transfer system for domestic U.S. fund transfers, Western Union also facilitates transfers of funds, and the Clearing House Payments Company operates the main electronic funds transfer system for processing international U.S. dollar funds transfers made between international banks. All of these sources are believed to contain information relevant to discovering the identities of U.S. taxpayers hiding assets offshore through services allegedly provided by Sovereign.
The John Doe summons has already proved to be a powerful tool to help the IRS gather information, including names and account information of U.S. taxpayers with foreign accounts or other foreign financial interests. The IRS has used the John Doe summonses to target individuals with foreign accounts who are hoping to “wait out” the IRS and thus avoid making a voluntary disclosure as well as those intending to avoid future reporting requirements. Once a taxpayer is on the IRS’s radar, IRS Criminal Investigation will no longer clear them to come into compliance under the protections of a voluntary disclosure program.
Services Offered By Sovereign Management That Could Facilitate Tax Evasion By U.S. Taxpayers.
Curious about the services offered by Sovereign, I visited their website.
One of the services offered by Sovereign is an “anonymous offshore ATM / debit card”. Long associated with tax evasion, offshore debit cards are a popular way for people with hidden assets to repatriate their money into the United States. Transferring money into your U.S. account would leave a paper trial but an anonymous debit card allows one to spend money in the United States and make ATM withdrawals with very little paper trail.
Sovereign advertises that their cards have neither a name imprinted on them nor encoded in their magnetic strips.
Of course, to open a foreign bank account most foreign banks want to see a passport. Sovereign has that covered too. For a fee, Sovereign offers “aged” offshore shelf corporations that already have bank accounts. Why present a passport when you can buy a company “off the shelf” that already has an offshore account?
Still need more anonymity? Sovereign offers “nominee director service”.
Worried that you might lose control of your funds or your offshore shelf company? Sovereign has an answer for that too. Their nominee directors come with undated resignation letters.
Sovereign advertises that for a mere $3,500 you can own a ready made Nevis corporation owned by a Panamanian foundation, complete with bank account. An aged company or one with nominee directors is extra, of course.
While none of these things alone are illegal, the IRS considers them to affirmative acts of tax evasion. Unless you have some valid business purpose, having a nominee entity will at a minimum get you audited and if you get caught with an unreported foreign account, you could land in jail.
Is There A Risk Of Getting Caught?
Absolutely! In the case of Sovereign, because they are located in Panama, their customer lists are beyond the reach of the Justice Department. The courier companies however can be subpoenaed and they carry checks and incorporation papers back and forth to Sovereign. Likewise the major credit card companies and ATM networks can be subpoenaed for the financial transactions flowing through their institutions. 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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