How The IRS Is Matching Big Data To Your Tax Return And Selecting You For Audit.

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According to IRS estimates, in a calendar year employers, businesses, financial institutions, credit card companies and other third party payers will file 2.3 billion information statements. These information statements report income and financial transactions, and can help individuals and businesses prepare accurate tax returns. Using information-matching programs, the IRS compares third-party information statements with taxpayer data, and sends a notice to taxpayers when IRS systems detect inconsistencies.

Here are some of the programs IRS has in place to help select tax returns for audit:

Individual Automated Underreporter (AUR) program

This matching program is better known by its primary notice: CP2000, Notice of Proposed Adjustment for Underpayment/Overpayment. IRS systems automatically send this notice when items reported on Form 1040, U.S. Individual Income Tax Return, don’t match information reported to the IRS by employers and other payers. The first round of these notices arrives just after Thanksgiving, and the second round arrives toward the end of the next year’s filing season.

The CP2000 notice has been a mainstay of IRS information reporting for decades. In 2012, the IRS issued more than 4.5 million CP2000 notices, with an average of $1,572 in additional taxes owed.

Form 1099-K merchant card transaction matching program

In 2012, the IRS started receiving from credit card companies, Forms 1099-K, Payment Card and Third Party Network Transactions. With merchant card transactions now being reported to IRS, the IRS quickly began using this information to match against business returns. However, because businesses do not specifically report merchant card transactions as separate line items on business tax returns, the IRS can only infer potential underreporting. For example, if a business has a disproportionate amount of cash to credit/debit card sales, based on its line of business, the IRS may look closer. These kinds of mismatches have led the IRS to develop compliance initiatives, including “soft” notices requesting explanation and mail audits requesting documentation.

The IRS is developing a Form 1099-K matching initiative that will make the IRS more efficient in identifying problem tax returns. But for now many initial notices indicate that the IRS is focusing on underreporting cases in which merchant card payments appear to make up the majority or even exceed the total business receipts reported on the return. In these cases, the IRS perceives that the business is underreporting cash sales due to the disproportionate share of merchant card payments. Accrual-basis taxpayers and e-commerce businesses whose receipts do not neatly match merchant card transactions are likely early targets in this program and we have had our share of this cases where that is what happened.

Automated Substitute for Return program

When a taxpayer does not file and the IRS has information statements indicating a filing requirement, the IRS uses the data to file a return on behalf of the taxpayer if there is a projected balance owed. In 2012, the IRS used information statements to file 803,000 returns for taxpayers, totaling $6.7 billion in additional taxes owed. And the sad thing about this is in just about every case, the amount actually owed when a tax return is filed by the taxpayer is much lower than what the IRS says a non-filer taxpayer owes. We even had cases where the IRS ended up owing our clients money.

Where in the future is the IRS going with their use of Big Data?

The IRS has been getting a lot of help from Congress where Congress has expanded the IRS’ reach to access more information to enforce compliance and implement new legislation.

1. Foreign Account Tax Compliance Act (“FATCA”)

This legislation became law in 2010. Starting in 2014, the IRS will have the ability to match taxpayers’ returns against the information it receives on U.S. taxpayers with accounts at foreign financial institutions. The IRS will likely scrutinize taxpayers who have not filed the required Form 8938, Statement of Specified Foreign Financial Assets, or FinCEN Form 114, Report Of Foreign Bank Account (commonly known as “FBAR”). Our office has a lot of cases representing taxpayers with undisclosed foreign bank accounts – it is a hot issue with IRS.

2. Patient Protection and Affordable Care Act (“Obama Care”)

As this Act is implemented in the next several years, the IRS will start using information statements for individual and employer compliance with the Act’s mandates. Starting in 2012, employers reported the value of employer-provided health insurance on Forms W-2, Wage and Tax Statement, to inform taxpayers of the value of their health insurance coverage. In 2015, the IRS will also receive information from health insurance companies on employee coverage, including the name and identifying information of the employer. The IRS can use the information to identify and penalize individuals and employers for noncompliance with Obama Care mandates.

The Stakes Are High!

A recent U.S. Government Accountability Office study showed that the IRS spends $267 million on underreporter matching programs, compared with the $4.2 billion it spends on audits. But automated information-matching programs return almost six times more revenue than audits. You can see why with fewer IRS agents and reduced budgets, the IRS will increasingly rely on technology-driven matching programs to bring in more tax dollars.

So if you receive one of these audit notices it is important that you don’t ignore it. 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 defend you from the IRS.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems and minimize the chance of any criminal investigation or imposition of civil penalties.

Beware Of The Dark Side – Protecting Yourself From The IRS

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A Gallup Poll released in April 2014 found that two-thirds of Americans believe that the Internal Revenue Service abuses its power. Yet few people realize exactly how much arbitrary power the IRS has through the Courts and the Laws of the United States.

Remember that the IRS like any government agency has a purpose to enforce the laws and like other government agencies the IRS will use all means available to achieve this purpose. For one thing the IRS will conduct undercover operations sometimes even masquerade as professionals to entice other citizens to violate tax laws.

The most common and for many people most cartographic use of power by the IRS is levying bank accounts, paychecks and other sources of income. Unlike a typical creditor, the IRS is able to do this without having to hire an attorney and for the most part does not even require a person to initiate this action. Instead it is the IRS computers that scour taxpayers’ accounts and when seeing that there is an outstanding balance sending out those dreaded Notices of Levy. What is even more tragic is that many times the amount that the IRS is seeking to collect is more than what the taxpayer should actually owe.

Take, for example, the case of Melvin Powers. In 1983 the IRS decided to investigate Mr. Powers’ 1978 and 1979 tax returns. Mr. Powers was a Houston builder and owner of five office buildings; he had only an eighth-grade education. The IRS had made no effort to examine Mr. Powers’ tax returns during the three years of the statute of limitations. Six weeks before the statute was to expire, an IRS agent asked Mr. Powers to sign a waiver of his statute of limitations, allowing the IRS to investigate him for another three years. Mr. Powers willingly agreed. In 1986, the IRS disallowed almost all of Mr. Powers’ business deductions for 1978 and 1979 and demanded $7,145,266.71 in back taxes, interest and penalties.

Shortly after the IRS’s assessment, a bankruptcy court trustee seized all of Mr. Powers’ operations, caused Mr. Powers to vacate his office premises, and took possession of his books and records for all years. Then, in early 1991, the IRS reversed itself and conceded that Mr. Powers actually had legitimate losses for the years under scrutiny and thus owed no taxes for those years. After IRS officials canceled the $7 million tax bill, Mr. Powers successfully sued the IRS to cover his legal costs for the case but it was already way too late as the IRS had devastated his life.

Another amazing position that the IRS maintains is that the IRS is entitled to impose penalties or seize property for overdue taxes even after the agency admits sending tax deficiency notices to the wrong address.

Take for example the case of Clayton and Darlene Powell. In late 1987 the Powell’s moved from Adelphi, MD, to Mitchellville, MD, and filed a tax return with their new address in early 1988. A few weeks after the IRS received the Powell’s’ new address, the agency sent a notice of deficiency for their 1984 tax return to their old address. The local post office — though it had the forwarding address — returned the notice to the IRS. Though the three-year statute of limitations had expired on the Powell’s 1984 return, on Dec. 28, 1988, the IRS sent a tax bill to their new address giving the couple 10 days to pay $6,864 in back taxes, interest and penalties or have their property seized. The Powell’s paid and then sued the IRS to get a refund.

The Federal Appeals Court ruled that “the Powell’s are entirely innocent” and ordered the IRS to issue a refund. The IRS then appealed the decision to the Supreme Court, contending that as long as the IRS mailed a tax deficiency notice to a taxpayer’s “last known address”, the taxpayer must be presumed to have received the notice — even when it is indisputable that he did not receive it.

The Justice Department, in its brief on this case, noted that the IRS “issues more than 2 million notices of deficiency each year and approximately 240,000 of those notices were returned undelivered during the past year.” The Justice Department whined that requiring the IRS to actually notify citizens of tax assessments before final seizure notices would impose “unmanageable detective burdens” on the IRS. The government went on to say that “This case threatens to create a ‘window of time’ during which the Internal Revenue Service may be helpless to protect its rights in pursuing delinquent taxpayers”.

The Supreme Court denied the government’s request to re-examine the Powell case. Yet even though the IRS lost in Federal Appeals Court on this issue and paid back the Powell’s, the agency has formally chosen to disregard that court’s verdict — to follow a policy of “nonacquiescence,” in legal terms. The IRS believes the court made a mistake and thus that the agency has no obligation to respect its decision.

So what is one to do when it is the IRS’ perspective that the citizen has an unlimited obligation to comply with its demands — even when the IRS fails to inform the citizen of its demands? You need to hire an experienced and local tax attorney who is accountable to you and will act in your best interest to defend you from the IRS and get an acceptable resolution. Having experienced tax counsel will level the playing field and take the IRS out of the driver’s seat.

Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego, San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.

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

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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!

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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.

Jeffrey B. Kahn, Esq. Discusses IRS Tax Enforcement On ESPN – July 17, 2014 Show

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1.   Welcome to 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.

2.   Breaks IRS is providing to waive penalties for U.S. taxpayers with undisclosed foreign bank accounts.

3.   The top ten tax problems that taxpayers face with the IRS.

4.   Questions from our listeners:

a.   Why should I hire the Law Offices Of Jeffrey B. Kahn for my IRS tax problem instead of using a local CPA or a general attorney?

b.   I have unfiled tax returns so what should I do?

c.   I can’t pay the IRS what I owe, what are my options?

 

IRS Offshore Tax Crackdown Opens With 30% Penalties for Banks

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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.

IRS To Waive Penalties For Some Overseas Accounts

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The Internal Revenue Service is offering to waive steep penalties for Americans living abroad who haven’t been paying their U.S. taxes.  But there is a catch: You have to be able to show that you didn’t evade U.S. taxes on purpose.

American citizens living abroad are required to file U.S. tax returns, even if they keep all their money overseas. Similarly, U.S. persons living in the United States are required to tell the IRS about any accounts they have in foreign banks.

The penalties for not reporting these accounts are stiff. 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.

The IRS announced changes in its voluntary disclosure program on June 18, 2014 that would largely waive these penalties if taxpayers come forward and show that they didn’t hide the money on purpose.

Americans living abroad can have all penalties waived, if they file three years’ worth of tax returns and pay any back taxes.

Americans living in the U.S. can come clean by disclosing overseas accounts and paying a penalty equal to 5% of the account’s assets.

For people who are willfully evading U.S. taxes, the IRS updated its existing program that imposes higher penalties (but still less than the maximum that can be charged under the tax law) for people who come forward and under this program the IRS continues to allow them to escape criminal prosecution.

The key to which program is most suited for you is to determine whether 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 I suggest that one consult with a tax attorney experienced in making voluntary disclosures of foreign accounts.

The disclosure program is a particularly good deal for Americans living in countries with higher tax rates than the U.S.  Typically, U.S. citizens living abroad must file a U.S. tax return and pay U.S. taxes on all income, regardless of where it is earned. However, they can deduct taxes paid to a foreign government from their U.S. tax bill.

Starting in 2009, the IRS has stepped up efforts to crack down on people who are willfully hiding assets overseas. Since then, the IRS has offered a series of programs to encourage people to come clean. In general, people who come forward can escape criminal prosecution in exchange for paying reduced penalties and back taxes.  More than 45,000 people have come forward so far into a voluntary disclosure program, paying about $6.5 billion in taxes, interest and penalties and because they went through voluntary disclosure, they avoided criminal prosecution.

Starting next year, it will get even tougher for Americans to hide assets overseas. Under FATCA, more than 77,000 foreign banks from about 70 different countries have agreed to start sharing detailed information about U.S. account holders with the IRS.

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.

Are YOU A U.S. Person With A Swiss Bank Account?

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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 (now known as FinCEN 114), 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.

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.