OVDP Ending September 28, 2018

If you have undisclosed foreign bank accounts and/or unreported foreign income and you are considering to enter into the Offshore Voluntary Disclosure Program (OVDP), beware that time is running out. The IRS announced in March 2018 that it is officially closing this program September 28, 2018.

Since OVDP’s initial launch in 2009, more than 56,000 taxpayers have used the various terms of the program to comply voluntarily with U.S. tax laws. These taxpayers with undisclosed offshore accounts have paid a total of $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. The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.

Since the announcement, the IRS has not received any public comments addressing a continued need for the OVDP. The IRS stated that it will still maintain a pathway for taxpayers who may have committed criminal acts to voluntarily disclose their past actions and come into compliance with the tax system. The IRS has yet to issue updated procedures on this.

Separately, the IRS continues to combat offshore tax avoidance and evasion using whistleblower leads, civil examination and criminal prosecution. 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 have enhanced the IRS’ ability to identity and charge non-compliant taxpayers undisclosed foreign financial assets. Since 2009, 1,545 taxpayers have been indicted related to international activities through the work of IRS Criminal Investigation.

Penalties for Non-Compliance.

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.

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

A separate program, the Streamlined Filing Compliance Procedures, for taxpayers who may have been unaware of their filing obligations, has helped about 65,000 additional taxpayers come into compliance. These streamlined procedures will continue to be available for now, but as with OVDP, the IRS has said it may end this program too at some point.

For taxpayers who were non-willful, we recommend going into the Streamlined Filing Compliance 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?

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. The IRS will not be keeping these special voluntary disclosure programs open indefinitely and once the IRS contacts you, you cannot get into any of these programs and would be subject to the maximum penalties (civil and criminal) under the tax law. 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 (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California help ensure that you are in compliance with federal tax laws.

IRS Now Targeting Taxpayers With Unreported Foreign Income And Undisclosed Foreign Bank Accounts

IRS Targeting Taxpayers With Unreported Foreign Income And Undisclosed Foreign Bank Accounts

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

IRS Issues Fall 2015 Report Card On OVDP Milestones And FATCA Implementation

Offshore Compliance Programs For Taxpayers With Undisclosed Foreign Bank Accounts Generate $8 Billion; IRS Urges People to Take Advantage of Voluntary Disclosure Programs

On October 16, 2015 the IRS announced in a news release that more than 54,000 taxpayers have entered into offshore voluntary disclosure programs since 2009. Both the Offshore Voluntary Disclosure Program (OVDP) and the streamlined procedures enable taxpayers to correct prior omissions and meet their federal tax obligations while mitigating the potential penalties of continued non-compliance. There are also separate procedures for those who have paid their income taxes but omitted certain other information returns.

IRS Commissioner John Koskinen stated “The groundbreaking effort around automatic reporting of foreign accounts has given us a much stronger hand in fighting tax evasion. People with undisclosed foreign accounts should carefully consider their options and use available avenues, including the offshore program and streamlined procedures, to come back into full compliance with their tax obligations.”

Under the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental agreements (IGAs) between the U.S. and foreign jurisdictions, automatic third-party account reporting began in 2015, making it less likely that offshore financial accounts will go unnoticed by the IRS.

In addition to FATCA and reporting through IGAs, the Department of Justice’s Swiss Bank Program continues to reach non-prosecution agreements with Swiss financial institutions that facilitated past non-compliance. As part of these agreements, banks provide information on potential non-compliance by U.S. taxpayers. Potential civil penalties increase substantially if U.S. taxpayers associated with participating banks wait to apply to OVDP to resolve their tax obligations.

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.

Since OVDP began in 2009, there have been more than 54,000 voluntary disclosures by taxpayers with undisclosed foreign bank accounts. The IRS has collected more than $8 billion from this initiative. 

The streamlined procedures, initiated in 2012, were developed to accommodate a wider group of U.S. taxpayers who have unreported foreign financial accounts but whose circumstances substantially differed from those taxpayers for whom the OVDP requirements were designed. More than 30,000 taxpayers have used streamlined procedures to come back into compliance with U.S. tax laws. Two-thirds of these have used the procedures since the IRS expanded the eligibility criteria in June 2014.

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.

Ty Warner, Beanie Babies Creator, Convicted For Not Disclosing Foreign Bank Accounts

It’s been about 20 years since the U.S. suddenly fell in love with the adorable 5-inch Beanie Baby dolls created by Ty Warner. But in October 2013 billionaire Ty Warner broke down crying in U.S. District Court as he pleaded guilty to one count of tax evasion for hiding $25 million in income in secret Swiss bank accounts.

The Rise And Fall Of Beanie Babies

Ty Warner wasn’t afraid to take risks. Beanie Babies first appeared in 1993, triggering a craze for the plush toys fashioned into bears and other animals. He ignored the naysayers after Beanie Babies flopped during their initial debut, and pressed forward with a product he believed in more than anyone else. One reason why the toys easily supplanted other fads such as Ninja Turtles and Cabbage Patch dolls was partly because of Mr. Warner’s strategy of deliberate scarcity. He rolled out each one—Spot the Dog, Squealer the Pig—in a limited quantity and then retired it.

At the height of the Beanie Babies craze, Mr. Warner was shipping more than 15,000 orders per day to retailers. This explosion of sales made him rich. Forbes recently put his net worth at $2.6 billion. Mr. Warner’s obsession even became an asset. When he would suddenly change product designs, collectors and wannabe entrepreneurs would snap up the $5.00 plushes and resell them on eBay at mark-ups topping 1,000%! Some people would take extreme measures to secure these rare editions. In 1999, Jeffrey White, a career criminal from West Virginia, shot and killed a co-worker at a lumberyard after an argument over Beanie Babies.

Three years into the Beanie Babies craze, Mr. Warner boarded a plane bound for Zurich, where he would make the biggest mistake of his life. In 1996, at UBS, one of Switzerland’s largest banks, he opened a secret account invisible to the IRS. The exact amount he deposited is unknown, but by 2002 it had grown to $93 million. To keep the account’s existence from prying eyes, including those of his own accountants, he signed a “hold mail” form that instructed the bank not to send any mail related to the account to the United States and to destroy any documents in his file when they became five years old.

The money Mr. Warner stashed in Switzerland remained there, compounding tax-free, for the next dozen years. And each time Warner got to the part on his Federal individual income tax return that asks if the taxpayer has any foreign accounts, he checked the box that said no.

As his net worth skyrocketed over the next few years, thanks to his 100% ownership of Ty Inc., Mr. Warner couldn’t help bragging about his success. In 1998, experts questioned his claim to be the world’s top toy seller. (Unlike public companies, private companies are not obliged to release revenue figures.) Miffed, Mr. Warner took out a full-page ad in The Wall Street Journal stating that his company had $700 million in profits in 1997. If true, that would have made it more profitable than his two top competitors at the time, Hasbro and Mattel, which reported $560 million in combined profits that year.

But you know the old saying – “What goes up also goes down”. Prices for Beanie Babies eventually crashed and collections, which some people insured for thousands of dollars, became worthless.

Ty Warner’s Tax Problems

Mr. Warner’s hubris eventually got the best of him, too and in October 2013 he pleaded guilty to tax evasion. The 69-year old billionaire who created Beanie Babies broke down crying in court in October 2013 as he pleaded guilty to one count of tax evasion for hiding $25 million in income in secret Swiss bank accounts.

Mr. Warner (#209 on Forbes 400 list) is not the first Forbes 400 member to draw tax charges. Leandro Rizutto (#296), founder of Conair, had his own run in with tax crimes. And another is Igor M. Olenicoff (#184), a Southern California real estate developer with a net worth of $2.9 billion.

According to the charging document, Mr. Warner opened a secret UBS account in 1996. In late 2002, he moved $93 million to Zürcher Kantonalbank. That account produced over $3 million of income in 2002 alone, which he failed to mention on his Form 1040. He even amended his 2002 return in 2007, but once again omitted the offshore income.

Mr. Warner still paid considerable tax on the nearly $50 million of 2002 income he did report. But he shorted the IRS by about $1.2 million. Including the next ten years, he admitted to the Court in his plea that he evaded paying $5 million in taxes due to the IRS. That’s a painful omission, not only drawing the tax evasion charge but huge FBAR penalties too. Prosecuters contended that he was concealing as much as $107 million in undisclosed foreign bank accounts. In Ty Warner’s case the FBAR penalty will exceed $53 million.

The numbers are staggering. And that ties into criminal penalties. A tax evasion conviction carries up to 5 years in prison and a $250,000 fine. Tax convictions even draw prosecution costs on top of all the back taxes, interest and penalties. And the penalties can be huge. Civil fraud penalties alone can add another 75%.

But when it comes to penalties, FBAR charges and penalties—even civil penalties—are the real gravy train for the government. An annual report of foreign accounts in the law since 1970, FBAR’s target money laundering. They were not widely known—or widely enforced—until the UBS scandal of 2008 and 2009.

But now they are ubiquitous, requiring reporting of foreign accounts even by those with mere signature authority but no beneficial interest. A willful failure to file an annual FBAR can trigger a civil penalty of up to 50% of the amount in the account at the time of the violation.

On January 14, 2014 Ty Warner the mastermind behind Beanie Babies—still considered the most successful toy launch in U.S. history—and is among the richest people in America, was sentenced by U.S. District Court Judge Charles P. Kocoras. On this day, Mr. Warner had nowhere to hide. As he walked to a court lectern in an impeccably tailored dark suit, his ginger-colored hair flaring copper under the stark lights, he looked as tentative as a modern-day Willy Wonka clomping across the plaza of his ruined reclusiveness. Mr. Warner said to Judge Kocoras, “I never realized that the biggest mistake I ever made in life would cost me the respect of those most important to me.”

But once Judge Kocoras began to speak, it became clear that Mr. Warner wouldn’t spend one day behind bars for tax evasion. The judge all but produced a sword, asked the toy man to kneel, and tapped him on each shoulder. “Mr. Warner’s private acts of kindness, generosity, and benevolence are overwhelming,” Judge Kocoras said after reading aloud letters from Warner’s supporters.

He further lauded Warner for already paying a civil penalty of $53 million (which amounts to just 2% of the billionaire’s estimated net worth), plus back taxes. “I believe . . . with all my heart, society will be best served by allowing him to continue his good works,” the judge concluded. In lieu of the four-year-plus prison term recommended by federal guidelines, Judge Kocoras sentenced Ty Warner to two years of probation, 500 hours of community service, and a $100,000.00 fine.

How Does This Effect You?

Although Mr. Warner’s numbers are huge, many more garden-variety taxpayers find themselves facing the awkward combination of failing to report interest on foreign bank accounts and failing to file FBARs. Even if the unreported income is small, the combination of amending tax returns to report it plus quietly filing past-due FBARs is a classic “quiet disclosure”. The IRS advises against them and says it can prosecute taxpayers who do it anyway.

What the IRS wants taxpayers to do is to join the 2014 Offshore Voluntary Disclosure Program. Like the 2009, 2011 and 2012 programs that preceded it, taxpayers must file up to 8 years of amended returns and up to 8 FBARs. Taxes on the unreported income, interest and a 20% penalty on the taxes seem reasonable.

But the sticking point for many is the IRS program’s counterpart to the FBAR penalty. Currently, the program’s penalty is 27.5% of the highest aggregate account balance in the undisclosed offshore accounts. For many, that is a crushing penalty, and for that reason many taxpayers have still refused to come forward taking the gamble that even with the new reporting required by foreign banks under FATCA they can remain undetected. Fortunately, starting with July 1, 2014 the IRS has issued new procedures in its Voluntary Disclosure Program that certain taxpayers could qualify of a 5% FBAR penalty and in some cases all FBAR penalties can be waived.

Crime Doesn’t Pay

The amount Ty Warner saved in income taxes by stashing money overseas was almost laughably small for a billionaire: just $5 million. He wound up having to fork over 16 times that to the feds.

$93 million
Amount in Swiss account in 2002

 $107 million
Account value in 2008

 $5 million
Taxes saved

 $80 million
Civil penalties, interest, and back taxes paid

Beanie Babies are still wonderful toys and, if you’re like most people who have them, yours are in mint condition because you once thought they would make you rich. The good news: Those animals will make a wonderful gift for a local hospital or police station, where they will provide comfort to people too young to remember that there was a time when Beanie Babies drove people to madness and its creator to the IRS. 

What Should You Do?

Charges like Mr. Warner’s stratospheric bubble-bursting Beanie Baby tax and FBAR consequences are reminders that your freedom is at stake and the dollars in question can get worse—catastrophically worse—than the reduced FBAR penalty offered by IRS in its Voluntary Disclosure Programs.

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.

The IRS Does Care About Your Small Undisclosed Foreign Bank Account!

Since 2009 the IRS campaign against unreported income and undisclosed foreign accounts has morphed from a focus on Swiss banks and large accounts to a kind of everyman’s tax disclosure.  But keep in mind that just like when the net is lowered into the water it catches all sizes of fish – the IRS states no undisclosed foreign account is too small to avoid penalties. Many people have problems sleeping because of Foreign Account Tax Compliance Act (FATCA) and the filing requirements of Foreign Bank Account Reporting (FBAR).

FATCA

FATCA was enacted in 2010 and the IRS has touted that FATCA has been successful so far. The IRS states they have collected US$6.5 billion and they reasonably believe that as much as $100 billion per year could be collected. The IRS is working with other countries that would like to use the U.S. model to improve their tax collection. The IRS will be working closely with the Organization for Economic Cooperation and Development (OECD) to implement Global FATCA (what many people are now calling GATCA); and also that the forms to request information from financial institutions would be standardized so that all countries would use the same forms, making it easy on the financial institutions. The IRS reasonably believes that FATCA can work, and given that the law has the effect of forcing compliance by every country, ultimately, everyone will benefit.

FBAR

Keep in mind that an FBAR is different from FATCA and the requirements are also different. While impact of FATCA is to report you foreign income on your U.S. income tax returns, FBAR is an informational submission that must be filed with the Treasury Department if you have more than $10,000 in financial assets overseas. So, for FATCA, the financial institutions and the foreign governments will report to the IRS directly, but for FBAR, the taxpayers must self-report to the United States Treasury Department by June 30th each year.

Sure, there are thresholds, including the rule that you don’t need to file annual FBARs if you have $10,000 or less in your accounts. But remember, that is in the aggregate, so having three accounts with $4,000 each puts you over.  

Plus, the $10,000 ceiling is judged every single day of the year. If you ever go over $10,000 in the aggregate at any point during the year, you must file. Remember too that even this FBAR threshold isn’t applicable to income taxes. If small accounts produce income, you must report it.

Say you have a foreign account with $8,000 at all times during the year, and it produces $400 of interest income. Even though the account isn’t subject to FBAR rules, you must report the income. And most foreign banks don’t send you handy Form 1099-type reminders at tax time.

Even if your undisclosed foreign bank account is small, if you fail to file FBARs and/or fail to report income, you could go to jail or face huge fines or penalties. The IRS has made clear that non-compliant accounts—and there’s no threshold for what accounts are too small to ignore—can be dealt with severely.

FBAR penalties can be enormous, a civil penalty of $10,000 for each non-willful violation. If your violation is willful, the penalty is the greater of $100,000 or 50% of the amount in the account for each violation. Each year you didn’t file is a separate violation.

Criminal penalties 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.

Consider Whether Your Delinquency Is Only In Taxes, Only FBARs Or Both.

Where The Delinquency Is FBAR’s Only –

For such cases you could be entitled to an FBAR Penalty Abatement. Perhaps you properly relied on the advice of professionals in not filing the FBARs or you reasonably did not know you had a filing obligation. By showing “reasonable cause” you may be able to abate the FBAR filing penalties. While the reasonable cause cases generally arise under the income tax laws and regulations, established under the Internal Revenue Code, FBAR penalties are assessed under the Bank Secrecy Act, which is part of the USA Patriot Act. Nevertheless we have found that precedent set forth in the tax cases may help in supporting reasonable cause to abate FBAR penalties.

Where The Delinquency Is FBAR’s AND Taxes –

You need to consider whether your non-compliance could be deemed willful by the IRS.  Non-willful conduct is conduct that is due to negligence, inadvertence or mistake, or conduct that’s the result of a good-faith misunderstanding of the requirements of the law.  The application of this standard will vary based on each person’s facts and circumstances so it is something that has to be evaluated on a case-by-case basis.

For Non-willful Delinquencies – The Streamlined Procedures are classified between U.S. Taxpayers Residing Outside the United States and U.S. Taxpayers Residing in the United States.

Both versions require that taxpayers:

a. Certify that the failure to report the income from a foreign financial asset and pay tax as required by U.S. law, and failure to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, resulted from non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

b. File 3 years of back tax returns reflecting unreported foreign source income;

c. File 6 years of back FBAR’s reporting the foreign financial accounts; and

d. Calculate interest each year on unpaid tax.

In return for entering the streamlined offshore voluntary disclosure program, the IRS has agreed:

a. Possible waiver of charges of criminal tax evasion which would have resulted in jail time or a felony on your record;

b. Possible waiver of other fraud and filing penalties including IRC Sec. 6663 fraud penalties (75% of the unpaid tax) and failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50% of the foreign account balance); and

c. Possible waiver of the 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651.

For U.S. Taxpayers Residing Outside the United States who apply to the streamlined program, the IRS is waiving the OVDP penalty.

For U.S. Taxpayers Residing in the United States who apply to the streamlined program, the IRS is imposing a 5% OVDP penalty (applied against the value of the undisclosed foreign income producing accounts/assets).

Now If You Believe That The IRS Would Deem You Willful – The 2014 Offshore Voluntary Disclosure Program (OVDP) is a voluntary disclosure program specifically designed for taxpayers with exposure to potential criminal liability and/or substantial civil penalties due to a willful failure to report foreign financial assets and pay all tax due in respect of those assets.  OVDP is designed to provide to taxpayers with such exposure (1) protection from criminal liability and (2) terms for resolving their civil tax and penalty obligations.

OVDP requires that taxpayers:

  • File 8 years of back tax returns reflecting unreported foreign source income;
  • File 8 years of back FBAR’s reporting the foreign financial accounts;
  • Calculate interest each year on unpaid tax;
  • Apply a 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651; and
  • Apply up to a 27.5% penalty based upon the highest balance of the account in the past eight years. This is referred to as the “OVDP Penalty”.

In return for entering the offshore voluntary disclosure program, the IRS has agreed not to pursue:

  • Charges of criminal tax evasion which would have resulted in jail time or a felony on your record; and
  • Other fraud and filing penalties including IRC Sec. 6663 fraud penalties (75% of the unpaid tax) and failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50% of the foreign account balance).

What Should You Do?

Remember small amounts and small accounts may not raise the same kinds of big ticket issues. Nevertheless, there’s no small fry rule at the IRS. Even small amounts of income and account balances can be worth addressing. It’s far better to address these issues than to worry endlessly over not being in compliance with the rules. 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%.

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.

IRS Agents To Hunt Tax Dodgers Overseas

On a recent airplane trip from the Bay Area to Southern California, I sat beside a distinguished-looking elderly man. I initiated a conversation with him and found out he was a former judge now living in Mexico. We talked about everything, including taxation.

The former judge admitted that he was an American citizen and he and some of his friends have problems sleeping because of Foreign Account Tax Compliance Act (FATCA). So, I asked him what about Foreign Bank Account Reporting (FBAR), as that was more serious than FATCA. But he had never heard about it. I wondered how many people are like the former judge and his friends who can’t sleep at night because of FATCA and who never heard of FBAR.

FATCA

FATCA was enacted in 2010 and the IRS has touted that FATCA has been successful so far. The IRS states they have collected US$6.5 billion and they reasonably believe that as much as $100 billion per year could be collected. The IRS is working with other countries that would like to use the U.S. model to improve their tax collection. The IRS will be working closely with the Organization for Economic Cooperation and Development (OECD) to implement Global FATCA (what many people are now calling GATCA); and also that the forms to request information from financial institutions would be standardized so that all countries would use the same forms, making it easy on the financial institutions. The IRS reasonably believes that FATCA can work, and given that the law has the effect of forcing compliance by every country, ultimately, everyone will benefit.

FBAR

Keep in mind that an FBAR is different from FATCA and the requirements are also different. While impact of FATCA is to report you foreign income on your U.S. income tax returns, FBAR is an informational submission that must be filed with the Treasury Department if you have more than $10,000 in financial assets overseas. So, for FATCA, the financial institutions and the foreign governments will report to the IRS directly, but for FBAR, the taxpayers must self-report to the United States Treasury Department by June 30th each year.

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 you with violations.

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.

Foreign Corporations

The IRS has a special interest in foreign corporations (i.e., corporations organized outside the United States). They are interested in shareholders with at least 10% ownership and directors of these foreign corporations. Foreign corporations are very important because that is where the big bucks are. They want U.S. citizens and green card holders who are 10% shareholders and directors (in said corporations) to provide information from the following sources annually: articles of incorporation, listing of directors, annual returns for the company filed with the registrar of companies and financial statements. While this information is filed for informational purposes only, the foreign corporations should file a tax return with the IRS. You should note that the requirement applies to partnerships and trusts also.

Those Who Gave Up U.S. Citizenship

The IRS has noted that a record number of Americans have given up citizenship recently and some may have done so with the intent to get around FATCA. But the news is bad, because the IRS is threatening that every one of those citizens will be thoroughly investigated with a view to seeing if they are trying to evade taxes.

The IRS warns that people with a certain amount of assets will be treated as if all the assets were sold and will be taxed as at the day when citizenship was given up. This will also apply to long-term green card holders. Also, if one has given up citizenship and spends more than 30 days in the United States in a calendar year, he may be taxed as if he were a citizen.

Bad Banks

The IRS has named about a dozen banks worldwide that are considered bad – and if you have an account in one of those banks and failed to comply with your filing and tax-reporting obligations, you are very likely to have a problem with the IRS.

Is The IRS Watching You?

The IRS claims it can tell when people enter and exit the country, and lying on immigration forms and tax returns is a federal offence. There is even a website that the IRS uses that can be used to tell whenever people enter and exit the United States.

Be aware that the number of days spent in the U.S. is very important in determining your tax status. For citizens, if you spend more than 330 days outside the U.S. per year, you will not be required to participate in Obamacare, or the number of days spent abroad will affect the amount of foreign earnings you may be able to exclude from income, hence paying low or no tax to Uncle Sam. For green card holders, you have immigration issues, as well as tax issues if you spend more than a specified period outside the United States.

It’s A Small World After All.

The IRS said people may be able to run, but they can’t hide. The IRS said it is going to have agents all over the world, as they are going to work closely with foreign governments through the information exchange programs and the financial institutions.

Also, the IRS is using Internet searches and social media like Facebook and LinkedIn to find tax dodgers, along with whistle-blowers. There will be GATCA, where other countries will be following the IRS path and these countries along with the U.S. are proposing one standard form that will be used to get information from financial institutions worldwide. So, if China wants information from Swiss banks, it will use the same forms to make the request as Jamaica or France.

The idea is to make it easier for the banks to retrieve information. So, we may be looking to one tax system if the OECD has its way and tax evasion worldwide may very well be a thing of the past in a few years’ time, and the full compliance with the IRS requirements is the best way forward.

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%.

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.

IRS Extends A Sweetheart Deal This Valentine’s Day To U.S. Taxpayers With Undisclosed Foreign Bank Accounts

On June 18, 2014, the IRS announced major changes in the 2012 offshore account compliance programs, providing new options to help taxpayers residing in the United States and overseas. The changes are anticipated to provide thousands of people a new avenue to come back into compliance with their tax obligations and would largely waive these penalties if taxpayers come forward and show that they didn’t hide the money on purpose.

Separate from United States income tax returns, many U.S. persons are required to file with the U.S. 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.

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 you with violations.

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.

The streamlined filing compliance procedures are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part.  The streamlined procedures are designed to provide to taxpayers in such situations (1) a streamlined procedure for filing amended or delinquent returns and (2) terms for resolving their tax and penalty obligations.

Taxpayers will be required to certify that the failure to report all income, pay all tax, and submit all required information returns, including FBAR’s (FinCEN Form 114, previously Form TD F 90-22.1), was due to non-willful conduct.

What Constitutes Non-Willful Conduct?

The key to qualification in this new procedure is to prove that your past actions or inactions can be considered to be non-willful conduct.  Non-willful conduct is conduct that is due to negligence, inadvertence or mistake, or conduct that’s the result of a good-faith misunderstanding of the requirements of the law.  The application of this standard will vary based on each person’s facts and circumstances so it is something that has to be evaluated on a case-by-case basis.

If the IRS has initiated a civil examination of a taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures.   Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.

Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns in an attempt to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called “quiet disclosures” made outside of the Offshore Voluntary Disclosure Program (“OVDP”) or its predecessor programs) may still use the streamlined procedures.

The Streamlined Procedures are classified between U.S. Taxpayers Residing Outside the United States and U.S. Taxpayers Residing in the United States.

Both versions require that taxpayers:

a. Certify that the failure to report the income from a foreign financial asset and pay tax as required by U.S. law, and failure to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, resulted from non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

b. File 3 years of back tax returns reflecting unreported foreign source income;

c. File 6 years of back FBAR’s reporting the foreign financial accounts; and

d. Calculate interest each year on unpaid tax.

In return for entering the streamlined offshore voluntary disclosure program, the IRS has agreed:

a. Possible waiver of charges of criminal tax evasion which would have resulted in jail time or a felony on your record;

b. Possible waiver of other fraud and filing penalties including IRC Sec. 6663 fraud penalties (75% of the unpaid tax) and failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50% of the foreign account balance); and

c. Possible waiver of the 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651.

For U.S. Taxpayers Residing Outside the United States who apply to the streamlined program, the IRS is waiving the OVDP penalty.

For U.S. Taxpayers Residing in the United States who apply to the streamlined program, the IRS is imposing a 5% OVDP penalty (applied against the value of the undisclosed foreign income producing accounts/assets).

Case Example:

Raj is an engineer working and living in California. He was born in India and came to California after completing his education in India. While he was a child his parents set up a bank account in India which he did not even know about until just recently. That account has been earning interest all of these years and now has a balance of $100,000.00.

What liabilities does Raj face under the Internal Revenue Code?

1. Back taxes, interest and 20% accuracy related penalty for the unreported interest income going back at least three years.

2. FBAR penalties of $10,000 per account per year (going back 6 years results in a $60,000 penalty).

When I total that all up, what started out as an account with $100,000.00 would leave Raj with about $30,000 – that’s a 70% reduction in value!

How would Raj fare by hiring tax counsel experienced in OVDP and going forward with one of the programs established by IRS?

1. Back taxes and interest for the unreported interest income for the last three years.
2. No 20% accuracy related penalty.
3. No FBAR Penalties
4. A one-time 5% OVDP penalty (applied against the value of the account)

So when I total that all up, what started out as an account with $100,000.00 now would leave Raj with about $93,000.00 – a 7% reduction in value. That’s a lot better than a 70% reduction in value! And there are things that we can do as tax counsel to make that reduction even smaller and perhaps get full abatement of penalties.

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%.

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.