Sovereign Management In Panama Now Under DOJ/IRS Investigation.

/in , /by

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.

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

/in , /by

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.

U.S. Cracks Israeli Bank Leumi – Bank Admits to Assisting U.S. Taxpayers in Hiding Assets in Offshore Bank Accounts

/in , /by

Americans with Israeli bank or other financial accounts could face a tough tax season in 2015 if they do not come forward and disclose their assets to the IRS.  Israeli banks have come under increased scrutiny by the IRS in regards to disclosing the accounts of their American clients.  In particular, three Israeli banks- Bank Hapoalim, Bank Leumi and Mizrahi Tefahot- have been under investigation by the Department of Justice.

The first Israeli bank to now bow to the United States is Bank Leumi. A deferred prosecution agreement between the Bank Leumi Group and the U.S. Department of Justice was filed today in the Central District of California that defers prosecution on a criminal information charging the bank with conspiracy to aid and assist in the preparation and presentation of false tax returns and other documents to the Internal Revenue Service.  This is the same type of agreement that the United States has with Swiss Bank giant UBS AG.

This unprecedented agreement marks the first time an Israeli bank has admitted to such criminal conduct which spanned over a 10 year period and included an array of services and products designed to keep U.S. taxpayer accounts concealed at Bank Leumi Group’s locations in Israel, Switzerland, Luxembourg and the United States.

Bank Leumi Group will pay the United States a total of $270 million. Of this total payment, $157 million represents a penalty for U.S. taxpayer accounts held at Leumi Private Bank in Switzerland.  This $157 million penalty is consistent with the department’s Swiss Bank Program, which permits certain Swiss Banks to avoid prosecution by making a full and complete disclosure of their U.S. taxpayer-held accounts and paying substantial penalties.  The agreement further provides that Bank Leumi Luxembourg and Leumi Private Bank will cease to provide banking and investment services for all accounts held or beneficially owned by U.S. taxpayers.

As part of its agreement with the department, the Bank Leumi Group provided the names of more than 1,500 of its U.S. account holders.  Additionally, the Bank Leumi Group will continue to disclose information to the government regarding its cross-border business and provide testimony and information regarding other investigations.

To avoid prosecution, many other Israeli banks will begin turning over information as early as July 2014.
The prompt release of U.S. accountholder information by Israeli banks is a result of the IRS’s efforts to fully implement the 2010 Foreign Account Tax Compliance Act (“FATCA”) which requires foreign banks and financial institutions to report the assets of their American account holders.  Lack of compliance, banks were warned, would limit their ability to do business in America.  FATCA was passed as part of the U.S. government’s effort to crack down on U.S. tax evaders.  Initially, the IRS concentrated its efforts on Swiss Banks.

This focus has led to an increase in the enforcement of the requirement that Americans and American residents file a Foreign Bank Account Report on every account held abroad that is worth more than $10,000.

Increased enforcement has impacted a wide circle of Americans, mainly Jewish, with ties to Israel. It includes not only those who have immigrated to Israel, or made aliyah, as adults, but also children of American citizens who are citizens themselves but may have never even visited the United States. The law is also relevant to any American who has opened an account in Israel in the past for use during visits to Israel or to help manage rental income in Israel.

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.

U.S. taxpayers with account holdings should seriously consider coming forward and disclosing their assets to the IRS.  If you have never reported your foreign investments on your U.S. Tax Returns, the IRS has established the 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.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 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 Diego, San Francisco and elsewhere in California qualify you for OVDI.

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?

/in , /by

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.

2015: A New Year And A New Era – Number Of FATCA Compliant Countries Continues To Increase

/in , /by

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. As of this blog posting, the U.S. has entered into Intergovernmental Agreements (“IGA’s”) with 48 countries for the implementation of FATCA.

The 48 countries with IGA’s already in place are:

Australia Czech Republic Isle of Man Mexico
Austria Denmark Israel Netherlands
Bahamas Estonia Italy New Zealand
Barbados Finland Jamaica Norway
Belgium France Japan Poland
Bermuda Germany Jersey South Africa
Brazil Gibraltar Latvia Spain
British Virgin Islands Guernsey Liechtenstein Slovenia
Canada Hungary Lithuania Sweden
Cayman Islands Honduras Luxembourg Switzerland
Chile Hong Kong Malta Turks and Caicos Islands
Costa Rica Ireland Mauritius United Kingdom

Countries that have reached IGA’s in substance and have consented to being included on this list are:

Algeria Dominica Macao San Marino
Angola Dominican Republic Malaysia Saudi Arabia
Anguilla Georgia Montenegro Serbia
Antigua & Barbuda Greece Montserrat Seychelles
Armenia Greenland Moldova Singapore
Azerbaijan Grenada Nicaragua Slovak Republic
Bahrain Guyana Panama South Korea
Belarus Haiti Paraguay Taiwan
Bulgaria Holy See Peru Thailand
Cabo Verde Iceland Philippines Trinidad & Tobago
Cambodia India Portugal Tunisia
China Indonesia Qatar Turkey
Colombia Iraq Romania Turkmenistan
Croatia Kazakhastan St. Kitts and Nevis Ukraine
Curaçao Kosovo St. Lucia United Arab Emirates
Cyprus Kuwait St. Vincent and the Grenadines Uzbekistan

Click here for progress and developments IRS has made in gathering information from foreign banks and foreign governments.

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.

Time is running out. The IRS is giving taxpayers one last chance to come forward and voluntarily disclose foreign accounts and unreported foreign income before the IRS starts investigating non-compliant taxpayers.

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 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.

London Mayor Refuses To Pay U.S. Tax Bill

/in , /by

London Mayor Boris Johnson is being pursued by U.S. tax officials while his former New York counterpart Michael Bloomberg was given an honorary knighthood by Queen Elizabeth last month.

Beware As The U.S. Tax Net Closes On Thousands Of U.S. Citizens Living Abroad.

The Conservative mayor of London – who was born in New York and holds an American passport – just revealed he is being pursued by the U.S. authorities for an unpaid tax demand. The demand reportedly relates to his first home in the UK, which he said was not subject to capital gains tax in England. According to U.S. tax law all citizens are required to file a tax return and pay U.S. taxes, even those with dual citizenship and those who earned income abroad.

The British Newspaper “The Telegraph” reports the home, in Islington, north London, was bought by Mr. Johnson and his barrister wife in 1999 for £470,000. They sold the house for £1.2million in 2009. As mayor of London, Mr. Johnson earns a salary of £144,000 and on top of that he is paid £250,000 a year for his column in the Telegraph. While in the U.K. he would not have been liable for capital gains tax as residents do not pay it on the sale of their first home, Mr. Johnson could be facing a bill of over £100,000 to the U.S.

U.S. tax laws which are administered by the Internal Revenue Service mandate that if you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad.

Quite simply: Your worldwide income is subject to U.S. income tax, regardless of where you reside.

When questioned in a recent interview on NPR, Mayor Johnson complained that he had been hit with an IRS demand for capital gains tax. He said the U.S. demand related to his first home in the U.K., even though it is not subject to capital gains tax in England. Mr. Johnson thinks it is outrageous to tax U.S. citizens everywhere no matter what. He exclaimed that he hasn’t lived in the U.S. since he was five years old!

Still, U.S. tax law is what it is and the IRS demands its money. Asked whether he would pay the bill, Johnson replied: “No is the answer. I think it’s absolutely outrageous. Why should I? I pay the lion’s share of my tax, I pay my taxes to the full in the U.K. where I live and work.”

Renouncing U.S. Citizenship Is Not The Cure.

A foreign-based person looking to renounce U.S. citizenship is treated as “exiting the U.S.” To exit, you generally must prove five years of U.S. tax compliance, and in some cases you pay an exit tax which is equal to 15% of the value of all your assets! Long-term residents giving up a Green Card can be required to pay the tax too.

Will The IRS Chase Mayor Johnson Down?

Yes and if you are in the same situation the IRS should be coming after you too. 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 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.

Have undisclosed foreign bank accounts? – What you should expect your tax preparer to ask you when you come in to get your taxes prepared next year.

/in , /by

CPA’s and other professional tax return preparers are bound to the IRS Code Of Professional Responsibility commonly called Circular 230 which if a tax preparer violates could lead to big penalties and sanctions for that tax preparer.

What penalties could tax preparers face?

A tax preparer who is in violation of these rules could be subject to the following:

Internal Revenue Code § 6694(a) provides that if any part of an understatement of a taxpayer’s liability is due to an “unrealistic position” taken on his return, any income tax return preparer who knew (or reasonably should have known) of this position is subject to a penalty of $250. If the understatement is due to a reckless or intentional disregard of rules or regulations the penalty is $1,000 per occurrence.

The tax preparer’s employer, firm or entity also is subject to the penalty if it knew, or reasonably should have known, of the conduct giving rise to the penalty.

While these may not seem like large amounts, if this penalty is assessed IRS employees are instructed to report the income tax return preparer to the IRS Office of Professional Responsibility (“OPR”). A tax preparer who is referred to the OPR, may be subject to suspension, disbarment, or censure. In addition, if the preparer has violated Circular No. 230, the IRS may impose a monetary penalty in an amount up to the gross income derived or to be derived from the conduct giving rise to the penalty.

Additionally, the IRS can go criminal on the tax preparer. Unscrupulous tax return preparers are generally prosecuted for violation of the Internal Revenue Code §7201, Attempt to Evade or Defeat Tax. This is a felony offense and carries a maximum potential penalty of up to five years in prison and a fine of up to $250,000. Internal Revenue Code §7206(1) and (2), Fraud and False Statements, also carries a maximum potential penalty of up to three years in prison and a fine up to $250,000.

What is one of the main obligations that a tax preparer must follow?

Circular No. 230 §10.22 Diligence as to accuracy which states that:

Each tax return preparer shall exercise due diligence:
a. In preparing or assisting in the preparation of, approving, and filing tax returns, documents, affidavits, and other papers relating to Internal Revenue Service matters;
b. In determining the correctness of oral or written representations made by the practitioner to the Department of the Treasury; and
c. In determining the correctness of oral or written representations made by the practitioner to clients with reference to any matter administered by the Internal Revenue Service.

This does not mean that you as a tax preparer have to actually audit or examine the records of your client. Under Circular No 230 §10.34(d), a tax preparer may generally rely, in good faith and without verification, on information furnished by a client. However, good faith reliance contemplates that a practitioner will make reasonable inquiries when a client provides information that implies possible participation in overseas transactions/accounts subject to FBAR requirements.

But what if the client makes certain statements that sound suspicious?

A tax preparer may not ignore the implications of any information provided to or actually known him or her. If the information furnished by the client appears to be incorrect, inconsistent with other known facts, or incomplete, the tax preparer is required to make further inquiry. The practitioner is also required by Circular No 230 §10.34(c), to advise a client of any potential penalties likely to apply to a position taken on a return the tax preparer is preparing or on which she or he is advising.

So if it is determined that the client has foreign income that must be reported on his U.S. income tax return and the client refuses to report this income, a tax preparer to avoid penalties and sanctions by the IRS cannot assist a client in filing a false return or filing a tax return taking a position that cannot be reasonable is not supported by the tax law.

Questions for tax preparers to ask.

With the IRS having more resources and information to detect taxpayers with undisclosed foreign accounts, what changes should taxpayers expect when they next meet with their tax preparer?

1. Does the client have a foreign account?
2. If yes, is it the type of account that is covered by 31 U.S.C. Section 5314?
3. If applicable, has the client properly completed Form 1040, Schedule B, Interest and Ordinary Dividends, Part III, Line 7a?
4. Has the client annually reported the income from the account?
5. Has the client filed FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (FBAR)?
6. Has the client filed Form 8938, Statement of Specified Foreign Financial Assets, with his or her federal income tax return?
7. Has the IRS already contacted the client about the foreign account?

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 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.

Time Is Ticking – After August 3, 2014 OVDP Penalty Set To Increase To 50% For Certain U.S. Taxpayers.

/in , /by

IRS Sends Signal Out That It Is Ready To Enforce The Tax Disclosure Laws For Foreign Accounts And Foreign Income Of U.S. Taxpayers With Swiss Bank Accounts.

If you have non-declared bank accounts with Swiss banks, or if you acted as signatory on such accounts, you should start to qualify for the 2014 Offshore Voluntary Disclosure Program (OVDP) as soon as possible, otherwise you risk that your own Swiss bank will report you to the IRS before you can file your own self-­declaration with the IRS. It can be too late to benefit from OVDP if you remain passive.

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).

Important Change to Offshore Program Announced By IRS on June 18, 2014 setting Important deadline of August 3, 2014.

Beware of the August 3rd deadline, if your undisclosed foreign bank account is with any of the following institutions:

1. UBS AG

2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.

3. Wegelin & Co.

4. Liechtensteinische Landesbank AG

5. Zurcher Kantonalbank

6. Swisspartners Investment Network AG, Swisspartners Wealth Management AG, Swisspartners Insurance Company SPC Ltd., and Swisspartners Versicherung AG

7. CIBC First Caribbean International Bank Limited, its predecessors, subsidiaries, and affiliates

8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.

9. The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)

10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates

These institutions are under investigation by the IRS or Department of Justice and therefore on the IRS’ “Bank And Promoter List”. For anyone who submits OVDP pre-clearance request after August 3, 2014, the OVDP penalty for their case shall be increased from 27.5% to 50%. It is key that to avoid this increase you must submit your OVDP pre-clearance request no later than August 3, 2014.

Of course, the IRS may add names to that list at any time, and whole groups of taxpayers will then be cut-off from OVDP without prior notice. The same goes for taxpayers who worked with a “facilitator” who helped the taxpayer establish or maintain an offshore arrangement if the facilitator has been publicly identified as being under investigation or as cooperating with a government investigation.

Important Signal From IRS That Enforcement Is Imminent.

The IRS has been receiving information from these institutions that go beyond just the names of U.S. taxpayers and their account information but also what communications occurred between these taxpayers and officials at these institutions. These communications could likely support the IRS taking a position that non-compliant taxpayers it catches acted willfully and should now be subject to the maximum civil penalties and perhaps referred for criminal prosecution. If the IRS was not in this position, they would have never announced on June 18, 2014 of an increase in the OVDP penalty rate to 50% for all new OVDP submissions made after August 3, 2014 that involve the banks listed above.

What Should You Do?

In case you are a U.S. person and you have such an account you should contact your Swiss bank and clarify what the Swiss bank plans are. Some Swiss banks are freezing bank accounts in order to have enough assets from their clients to cover and compensate a hard financial punishment from the IRS. This is illegal but the Swiss banks know that a U.S. client having undisclosed funds will never initiate a legal procedure against his bank if that U.S. client is to remain non-compliant with the IRS. That U.S. client knows the risk to be discovered in case of a claim before court is simply too high.

If you want to qualify for OVDP it is in your best interest to speed up the procedure and disclose the account to the IRS before the Swiss bank will report your account to the IRS. If you are slow to act, you risk notbeing accepted for OVDP. In such a situation you cannot benefit anymore from the advantage of having disclosed yourself to the IRS. You risk a criminal prosecution and by then, it will be too late to avoid the new higher penalties under OVDP of 50% percent – nearly double the regular maximum rate of 27.5%.

Recent closure and liquidation of foreign accounts will not remove your exposure for non-disclosure as the IRS will be securing bank information for the last eight years. Additionally, as a result of the account closure and distribution of funds being reported in normal banking channels, this will elevate your chances of being selected for investigation by the IRS. For those taxpayers who have submitted delinquent FBAR’s and amended tax returns without applying for amnesty (referred to as a “quiet disclosure”), the IRS has blocked the processing of these returns and flagged these taxpayers for further investigation. You should also expect that the IRS will use such conduct to show willfulness by the taxpayer to justify the maximum punishment.

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 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.

Have An Undisclosed Foreign Bank Account? You May Owe The IRS $10,000!

/in , /by

Do you have any money or assets outside the U.S.? Seems like a pretty straightforward question, doesn’t it? Well, a lot of people are surprised to learn that they do have offshore funds. And if they don’t file a certain form with the U.S. Treasury Department by June 30, the minimum late fee is $10,000.

The form in question is known as the FBAR – Report of Foreign Bank and Financial Accounts. Starting in 2014, there is a new, mandatory online version of the form – FinCEN Form 114. It is filed directly through a website maintained by the U.S. Treasury. The 2013 Form was due June 30, 2014.  The purpose of this reporting document is to give the U.S. Treasury Department specific information about all financial accounts that Americans control, worldwide. The idea is to ensure that people are not hiding money offshore and thus not reporting it on their U.S. income tax returns.

Who needs to file this form?

• United States persons who have a financial interest in or signature authority over at least one financial account located outside of the United States; and

• People for whom the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

There are two more conditions that go with this form.

• At the bottom of your Form 1040 Schedule B (where you report dividends and interest), there are two checkboxes. You must check YES, if you are required to file the FBAR. Checking NO can result in that $10,000 fine.

• You must report the earnings on all those overseas accounts – however small the earnings are.

This seems pretty clear, right? So what’s the problem? Where’s the confusion? It all stems from the Federal government’s requirement that you have a “financial interest in or signature authority” over a foreign bank account.

This is what gets innocent people caught in the penalty trap.

In fact, did you know that there’s a second form you may have to file if you have assets or accounts overseas? It is Form 8938 which under the Foreign Tax Compliance Act (FATCA) is included with your Form 1040 for tax years starting 2011. You file this if your overseas accounts and/or assets exceed certain limits – $50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad).

Common Situations That Will Trigger The $10,000.00 Penalty

• Your elderly parents in India set you up with the authority to sign on their bank account(s) in case of illness. You meet both definitions (above) – even if you never use the account and don’t think of it as yours and forgot you ever got this power from your parent(s). Result: IRS will assert a $10,000 penalty.

• There’s an inheritance from your aunt in the U.K. The estate attorney controls it all until the details are worked out. But the assets and funds are in trust for you. You didn’t include the earnings on your tax return and you didn’t file the FBAR.  Result: IRS will assert a $10,000 penalty.

• Your family members in the Philippines set up a bank account in your daughter’s name the day she was born. Your parents and other relatives have been adding to it ever since. By age 16, there’s over $100,000 in it. You forgot about it and didn’t know how much money was in the account. You haven’t picked up the income as kiddie-tax on your return and you didn’t file the FBAR. Result: Minimum $10,000 penalty and since the balance in the account is over $100,000, the penalty could rise to 50% of the account value per year after the reporting is caught up.

• You have pension accounts in Germany that you won’t be touching until you retire; they might include Social Security-like accounts you didn’t realize were not taxable or foreign-issued life insurance policies with a cash value.  If the aggregate value of the accounts at any time during the calendar year exceeded $10,000 and you did not file the FBAR, the IRS will be asserting a penalty of $10,000 per undisclosed account!

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 Offshore Tax Crackdown Opens With 30% Penalties for Banks

/in , /by

The year is 2014 and we are into a new era of transparency where the IRS is getting information on U.S. taxpayers from foreign banks and the IRS is taking action by examining and investigating taxpayers who are not reporting their worldwide income nor disclosing their foreign accounts.

Many people thought that forever they can keep their foreign accounts a secret – not just from their creditors and spouses but also from the IRS.  But we are in a new era.  

Starting July 1, 2014, the IRS is imposing a 30% withholding tax on many overseas payments to foreign financial institutions that do not share information with the IRS.   That means that any non-compliant foreign bank which invests in the U.S. will be getting a 30% haircut on distributions and income from U.S. investments.

This new burden has frustrated overseas banks and U.S. expatriates. It’s also created a new standard of global bank-to-government information sharing designed to throw light on often difficult-to-trace accounts.

FATCA – New Law Of The Land

Under the Foreign Account Tax Compliance Act (“FATCA”), the U.S. is allowed to scoop up data from more than 77,000 financial institutions and 80 governments about overseas financial activities of U.S. persons.

What led to the enactment of FATCA in 2010 was the inability of federal tax authorities to obtain clear information about financial accounts that U.S. persons have outside the country. That’s especially important for the U.S., because unlike many other countries, the U.S. taxes its taxpayers on their worldwide income regardless of where they actually live.

In establishing FATCA, Congress and President Obama in effect threatened to cut off banks and other companies from easy access to the U.S. market if they didn’t pass along such information. The U.S. was able to leverage its status as a financial center to demand action from governments and banks in other countries. The proposal was barely debated when Congress in 2010 passed it as a budgetary offset to a tax credit for hiring. It was projected to raise $8.7 billion in revenue over a decade.

Withholding Tax

Under FATCA, U.S. banks and other companies making certain cross-border payments — such as interest and dividends — to foreign financial institutions must withhold 30% of such payments as a tax if the recipient isn’t providing information about its U.S. account holders. Later phases of the law will apply to a broader set of cross-border payments, such as gross proceeds from stock sales. Many non-financial companies will be affected, too.

FATCA prompted more than 77,000 foreign financial institutions to register for the program to avoid the withholding tax. As a result of that compliance, the IRS doesn’t expect to collect much direct revenue from the 30% levy. But the IRS expects to collect a lot more from U.S. taxpayers.

Direct Disclosure

In most cases, the law isn’t being implemented as written, because foreign banks said direct disclosure to the IRS would violate their local laws. But foreign laws have no impact on FATCA’s withholding tax on U.S. payers so this has spurred negotiations between the U.S. and foreign governments.  Additionally other countries saw the potential benefits of reciprocal information exchange so that they too can make sure their citizens are not evading taxes.

So far, the U.S. has reached final or provisional agreements with more than 80 jurisdictions, allowing for government-to-government information exchange or streamlined business-to-government exchanges.

The list includes jurisdictions that often are labeled as tax havens, such as the British Virgin Islands, the Cayman Islands and Guernsey. It also includes most of the world’s major economies, such as Germany, France, Japan, Canada and the U.K.  This list continues to grow as more countries and business are accepting and even embracing FATCA.

U.S. Prosecutions Also Serving As A Source For Information

Even without FATCA in place, the U.S. has used prosecutions against Credit Suisse, UBS and other major foreign banks to glean information on Americans hiding overseas accounts.

Prosecutors have charged more than 70 U.S. taxpayers and three dozen bankers, lawyers and advisers in their crackdown on offshore tax evasion. Those charged include H. Ty Warner, the billionaire creator of Beanie Babies plush toys; Igor Olenicoff, a billionaire real estate developer; and Brad Birkenfeld, a former UBS banker who blew the whistle on the bank.

FATCA is here to stay.  IRS Commissioner John Koskinen has put the implementation of FATCA on the top of his agency’s list.  

We are in a new era.  Whether you are a big fish or a small fish, the IRS intends to catch you.  And so it is time for you to come forward before it is too late.

What Should You Do?

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’ 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.