IRS Says “Foreign” Online Gambling Accounts Must Be Reported On An FBAR

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Given all the press surrounding the “Report of Foreign Bank and Financial Accounts” or so-called FBARs, by now we all know about what should be reported on an FBAR, right? Well, given the Internal Revenue Service’s latest assertion in United States v. John C. Hom (Case No. C 13-03721 in the U.S. District Court for the Northern District of California), maybe we had better start studying once again.

Online Gambling Accounts

Mr. Hom was an avid and professional internet gambler with online gambling accounts maintained with various popular overseas entities such as FirePay.com (based in London), PokerStars.com (based in Isle of Man), and Partypoker.com (based in Gibraltar). The overseas gambling accounts circumvent U.S. laws that prohibit the interstate operation of betting businesses in the United States thus making online gambling technically illegal.

Mr. Hom was randomly selected for an audit when during the course of the audit the IRS agent discovered the online gambling accounts. The IRS then assessed the FBAR negligence $10,000 penalty for each unreported online gambling account for each year at issue. While

While these online accounts may not be a traditional type of financial accounts (such as a bank account), the IRS contends that they functioned in the same way as such traditional accounts. For example, taxpayer opened the accounts in his own name, he had a user name and password, funds were transferred or disbursed from the accounts at taxpayer’s discretion, taxpayer could transfer funds from one account to another, deposit and withdraw funds at will and could carry a balance in the accounts. For these reasons, the IRS maintains that the accounts at FirePay.com, PokerStars.com, and Partypoker.com are “bank, securities, or other financial account[s]” for purposes of FBAR reporting under the Bank Secrecy Act provisions.

This issue is currently being considered by the judge. We will keep you updated on what happens.

Who Must File FBAR?

The Bank Secrecy Act requires that a Report of Foreign Bank and Financial Accounts (FBAR), be filed if the aggregate balances of such foreign accounts exceed $10,000 at any time during the year. This form is used as part of the IRS’s enforcement initiative against abusive offshore transactions and attempts by U.S. persons to avoid taxes by hiding money offshore.

The FBAR covers a calendar year and must be filed no later than June 30th of the following year (regardless of whether you file an extension for you Form 1040) and includes any interest a U.S. person has in:

Offshore bank accounts
Offshore mutual funds
Offshore hedge funds
Offshore variable universal life insurance policies
Offshore variable annuities a/k/a Swiss Annuities
Debit card and prepaid credit card offshore accounts
Effective September 30, 2013, Form TD F 90-22.1 (the old FBAR form used in previous years) has been replace by FinCEN Form 114. Also, unlike the old FBAR form which was filed in paper format only, FinCEN From 114 can only be filed electronically. The deadline to file remains June 30th following the reporting calendar year (i.e., the 2013 FBAR is due June 30, 2014). No extensions are available.

The penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. The penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

The Solution For Past Noncompliance

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.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). 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.

Description: 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 and elsewhere in California qualify you for OVDI.

Swiss Bank Information On U.S. Accountholders Now Flowing To IRS WITHOUT Notice!

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The United States Department Of Justice (DOJ) has received 106 requests from Swiss entities to participate in a settlement program aimed at ending a long-running probe of tax-dodging by Americans using Swiss bank accounts according to a senior US official. We previously reported that over 24% of secret accounts that were later voluntarily disclosed by U.S. taxpayers to avoid prosecution came from Switzerland.

These banks will be disclosing a great deal of information about their American clients including names as early as April 30, 2014.

To make matters worse for U.S. accountholders, Swiss Parliament has approved a legal amendment that foreign accountholders will not have to be told if Switzerland sends information about them to other countries. This move further loosens Swiss banking secrecy laws in order to avoid a global backlash.

So if you have unreported income from foreign banks, it’s time for a reality check:

1. If your account is with one of 106 Swiss Banks, then your information is probably already on its way to the IRS.

2. If your account is with any other foreign bank in ANY country, your account information will be turned over to the IRS, pursuant to the U.S. Foreign Account Tax Compliance Act (FATCA), regardless of whether you received any notification from your bank that it is following this protocol.

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 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.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). 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.

Description: 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 and elsewhere in California qualify you for OVDI.

Reminder For Taxpayers with Foreign Assets of 2014 U.S. Tax Filing Obligations

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U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2013 who will have a U.S. tax liability need to be mindful of their filing requirements in 2014.

The filing deadline is Monday, June 16, 2014, for U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular due date of their tax return. Eligible taxpayers get one additional day because the normal June 15 extended due date falls on Sunday this year. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies.

Nonresident aliens who received income from U.S. sources in 2013 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 16 depending on sources of income.

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B to their tax return. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets.
Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds.

Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2013 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). This form replaces TD F 90-22.1, the FBAR form used in the past. It is due to the Treasury Department by June 30, 2014, must be filed electronically and is only available online through the BSA E-Filing System website.

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 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.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). 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.

Description: 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 and elsewhere in California qualify you for OVDI.

California Reporting Requirements for Canadian RRSP’s

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Sometimes the tax consequences at a Federal level are different than that at the State level.

Such is the case in California when dealing with a Canadian Registered Retirement Savings Plan (RRSP).

As explained in Revenue Procedure 89-45, a Canadian RRSP is not an Individual Retirement Account (IRA) because “these plans do not meet the requirements for qualification as individual retirement accounts under section 408(a) of the Internal Revenue Code. As a result, the earnings of such a plan are includable currently in the gross income of the beneficiary of the plan for United States income tax purposes.” Rev. Proc. 89-45; superseded by Rev. Proc. 2002-23. 2 Rev. & Tax. Code, § 17501. Because California also conforms to federal law regarding the treatment of IRA’s (Rev. & Tax. Code Sec 17501), an RRSP does not qualify as an IRA for California income tax purposes.

Revenue Procedure 89-45 then explains that for federal income tax purposes, a taxpayer may elect to defer the taxation of earnings on contributions made while the beneficiary is a resident of Canada, until the earnings are distributed from the RRSP. This special treatment is provided in accordance with a treaty between the United States and Canada, and does not apply to California.

The State Board of Equalization has previously held that tax treaties between the United States and other countries which expressly limit their application to federal income taxes do not prevent California from taxing persons otherwise covered by such treaties.” Appeal of M. T. de Mey van Streefkerk, 85-SBE-135, Nov. 6, 1985. The United States Supreme Court noted that “the tax treaties into which the United States has entered do not generally cover the taxing activities of subnational governmental units such as States … and if the treaty does apply to the States it will be specified in the treaty itself. Container Corp. v. Franchise Tax Board (1983) 463 U.S. 159, 196. Accordingly, the federal election to defer taxation on earnings of the RRSP is inapplicable for California income tax purposes.

Basically, the Franchise Tax Board considers a RRSP to be similar to a savings account. The Franchise Tax Board will treat a taxpayer’s original contributions to the RRSP, made while a Canadian resident, as a capital investment in the RRSP. A California resident must include any earnings from their RRSP in their taxable income and pay taxes on this income in the year earned. After a taxpayer pays tax on these earnings, the earnings will also be treated as capital invested in the RRSP. Therefore, when a taxpayer receives a distribution from their RRSP, the amount consisting of the contributions and the previously taxed earnings is considered a nontaxable return of capital.

In summary, under both federal and California law an RRSP does not qualify as an IRA and does not receive IRA treatment. The federal treaty that allows taxpayers to elect to defer taxation on their RRSP earnings until the time of distribution does not apply for California income tax purposes. California residents must include their RRSP earnings in their taxable income in the year earned.

California taxpayers who have an interest in a Canadian RRSP would benefit from the experienced tax attorneys of the Law Office Of Jeffrey B. Kahn, P.C. representing you to avoid the pitfalls associated with failure to comply with the reporting requirements associated with having an interest in an RRSP.

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.

Nine Things That Will Elevate Your Chances Of Being Targeted By IRS For Past Nondisclosure Of Foreign Accounts and/or Failure To Report Worldwide Income

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If you have undisclosed foreign accounts you have an important decision to make. That decision being – when do you start disclosing your foreign bank accounts and foreign income and how should you disclose?

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 with recent changes in the tax law, mandatory reporting of U.S. account holders by foreign banks and the IRS’ placement of dedicated resources and systems to detect non-compliant taxpayers, it is not a question of “if you get caught” but “when you will get caught”.

Here are the nine things that would accelerate your chance of being caught by IRS:

1. Starting to report foreign income on your 2013 income tax return and disregarding the fact that you did not disclose this in previous years. The IRS computers already are programmed to compare information on prior returns to your current return to look for unusual swings in activity and income.

2. Starting to report your foreign accounts on an FBAR in 2013 and disregarding the fact that you did not disclose this in previous years. The IRS computers already are programmed to compare information on prior returns to your current return to look for unusual swings in foreign accounts and can do this more quickly and effectively as information is required to be filed electronically.

3. Filing delinquent FBAR’s with or without statement as to why they are filed late. It is always a red flag to the IRS when a taxpayer files delinquent FBAR’s which in order to be processed will need to be reviewed by an IRS agent.

4. Filing amended income tax returns identifying that you have foreign accounts and reporting foreign income. Another red flag to the IRS when a taxpayer files delinquent returns which in order to be processed will need to be reviewed by an IRS agent.

5. Supplying your foreign bank with your identifying information so that the bank can report you to IRS. And just like your employer or another payor, your information at the foreign bank will be reported to IRS.

6. Ignoring requests from your foreign bank for your identifying information. Even where the bank does not receive any information from you, the bank will still report what information it has to IRS which the bank is still required to do. In addition, the foreign bank will freeze your account until you provide the bank with your identifying information.

7. Transferring funds from the U.S. to your foreign account or from the foreign account to the U.S. These transfers are independently reported through the banking channels and will make their way to IRS.

8. Paying your credit cards and other bills from an account associated with a foreign bank. These transactions are independently reported through the banking channels and will make their way to IRS.

9. Closing your foreign account and withdrawing the funds or transferring the funds to another bank (whether to the U.S. or another foreign bank). Even where an account was closed, the bank will still report what information it has to IRS which the bank is still required to do. We have clients whose foreign account was closed at least three years ago and they are still being reported to IRS.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). 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 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.

Why Is It Better To Hire A Tax Attorney Instead Of Your Tax Preparer For Your OVDI Submission

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A common question we hear a lot: My CPA who I have been going to for years has never told me that I had to report my foreign income. Now that I know I have to report my foreign income and disclose my foreign bank accounts, do I accept my CPA’s offer to represent me in OVDI or do I hire you?

CPA’s prepare tax returns and there are a lot of CPA’s and other tax professionals who a great in preparing tax returns.

A taxpayer will provide them with information and tax documents and a return will be generated for filing with the IRS. This process I refer to as “compliance”.

But a tax attorney will focus on “representation” – meaning that the cases taken on by the attorney are when the IRS is questioning a return or making other civil or even criminal inquiries of a taxpayer.

A tax attorney being familiar with the “representation” aspect, knows who to speak to at IRS and how to best present your case. A tax attorney can also devote full attention to your attention at any time since the tax attorney’s workload is not jammed like the CPA’s workload during tax season who is busy with tax return preparation and more focused over meeting filing deadlines and therefore cannot provide the needed attention to your case.

Speaking of civil and criminal inquiries, a taxpayer who engages a tax attorney also gets the benefit of attorney-client privilege. This benefit allows that taxpayer to freely discuss with his attorney any matters or issues without the threat of these communications being disclosed to the government or anyone else. You do not get this level of privilege when dealing with non-attorneys.

But I would have to say that the biggest factor is that with the tax attorney there is no conflict of interest. The best way to explain this is by example – if a great defense is that you relied on your tax preparer to tell you whether you had to report your foreign accounts and foreign income, do you think your tax preparer will put himself under the bus to save you from the IRS – chances are not. A tax attorney who had no involvement in the preparation of your returns can make these arguments thus truly serving your best interests.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). 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 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.

The Story Of Bradley Charles Birkenfeld And How Because Of His Actions No Longer Can Foreign Accounts Be A Secret.

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If you have undisclosed foreign accounts you have an important decision to make. That decision being – when do you start disclosing your foreign bank accounts and foreign income and how should you disclose?

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.

Well thanks to a man called Bradley Charles Birkenfeld, no longer can these foreign accounts be a secret.

Birkenfeld, an American citizen who grew up in Boston and was educated at the American Graduate School of Business in Switzerland, was an up-and-coming banker rising through the ranks of Switzerland’s greatest bank, UBS. Working at UBS in Geneva, Switzerland, as a private banker offering wealth management services, his principal job responsibility over his 5-year tenure at UBS was to solicit wealthy Americans to move their assets to the bank, enabling them to hide their funds due to Switzerland’s strict banking secrecy laws and thus avoid paying U.S. taxes.

Birkenfeld was living the high life with UBS going to UBS sponsored events like art shows and yacht races in the United States to attract wealthy people as potential clients. The events gave its Switzerland-based bankers, who essentially behaved as salesmen offering the product of a Swiss tax haven, a chance to network with the rich in order to cement deals, which was illegal under U.S. banking laws.

One of Birkenfeld’s wealthiest clients was billionaire California real estate developer, Igor Olenicoff. Birkenfeld arranged for him to transfer $200 million to UBS and for Olenicoff to have these funds accessible via credit cards supplied to him by UBS. Birkenfeld then introduced Olenicoff to other bankers at UBS who helped him create off-shore companies to hid his assets and evade taxes.

Olenicoff subsequently pleaded guilty to tax evasion and paid a $52 million fine, but avoided a jail sentence. Apparently the U.S. Department Of Justice (DOJ) had their sites on a bigger target – that being Birkenfeld.

In 2005 Birkenfeld resigned from UBS. That is when he approached DOJ and informed the DOJ of UBS’ business practices.

At the same time, Birkenfeld wanted to take advantage of a new federal whistleblower law, the Tax Relief and Health Care Act of 2006, that could pay him up to 30% of any tax revenue recouped by the IRS as a result of Birkenfeld’s information.

Birkenfeld also wanted immunity from prosecution for his part in UBS’s transactions.

Essentially Birkenfeld wanted to have his cake and eat it too!

When Birkenfeld saw that the DOJ was not meeting his demands, he contacted the Securities and Exchange Commission (SEC), the IRS, and the U.S. Senate.

You would think with all of this information Birkenfeld would receive praise and gratitude by the Federal government. Instead, in May 2008, Birkenfeld was arrested in Boston when he deplaned from Switzerland. He was arraigned at the U.S. District Court, Southern District of Florida. The DOJ prosecutor in the case justified the prosecution of Birkenfeld by claiming he failed to be forthcoming about his clients, specifically, Igor Olenicoff. Eventually Birkenfeld agreed to plead guilty to a single count of conspiracy to defraud the United States. Birkenfeld was sentenced by a U.S. District Judge to 40 months in prison and paying a $30,000 fine.

Since Birkenfeld blew the whistle on the UBS tax evasion scandal, in 2007 UBS avoided prosecution by agreeing to pay a fine of $780 million to the U.S. government.

Additionally, UBS paid $200 million for settlement with the SEC to avoid a trial on UBS’ alleged conduct that the company facilitated the ability of certain U.S. clients to maintain undisclosed accounts in Switzerland and other foreign countries, which enabled those clients to avoid paying taxes related to the assets in those accounts.

Finally to avoid additional fines, UBS agreed to provide the names of all Americans who had offshore accounts with UBS.

In the wake of the UBS scandal, the erosion of Switzerland’s fabled bank secrecy culminated when Switzerland officially signed on October 15, 2013 a treaty called the Convention on Mutual Administrative Assistance in Tax Matters. By Switzerland signing the treaty, they no longer could be a tax haven for offshore assets. The U.S. had won its war against Switzerland!

This then set the stage for the IRS’ worldwide campaign to break into foreign financial institutions and uncover U.S. accountholders.

So what ended up becoming of Birkenfeld? Birkenfeld was able to get his sentence commuted and ended up serving about 32 months. In September 2012, the IRS Whistleblower Office awarded Birkenfeld $104 million as a whistleblower. After serving a 32 month jail sentence – that equates to daily compensation of about $105,000.00.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). 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 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.

The IRS Knows Where U.S. Offshore Tax Evaders Live And Bank!

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The U.S. Government Accountability Office (GAO) has just released its report: “IRS’s Offshore Voluntary Disclosure Program (OVDP): 2009 Participation by State and Location of Foreign Bank Accounts”. In this report the GAO studied the make-up of all 10,533 applicants to the IRS 2009 Offshore Voluntary Disclosure Program which was open for enrollment during eight months in 2009.

California had the most participants in the 2009 OVDP (2,524 or 24%) followed by New York (1,844 or 18%) and then Florida (1,022 or 10%). Combined these three states make up 52% of all 2009 OVDP participants.

As for where these accounts are located, the top six countries are:

Country

Number Of Applicants

Percentage

Switzerland

5,427

42%

United Kingdom

1,058

8%

Canada

556

4%

France

528

4%

Israel

510

4%

Germany

484

4%

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 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.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). 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 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.

IRS Targets Americans Living In Israel!

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Americans with Israeli bank or other financial accounts could face a tough tax season in 2014 if they do not come forward and disclose their assets to the IRS.  Recently, 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- are under investigation by the Department of Justice.  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. As the IRS cracks down on offshore accounts and on suspected fraud from overseas, Israel faces extra scrutiny. A recent report issued by the Government Accountability Office found that 4% of the accounts reported worldwide through this program were in Israel, making it the fifth most likely destination for overseas bank accounts.

Israeli banks have increased their efforts to identify clients who are United States citizens and report them to the IRS. A series of prosecutions against American citizens trying to avoid reporting their accounts in Israel and against tax preparers who advised their clients to use Israel as a tax shelter helped drive home the point.  Accordingly, Israeli banks have been urging their American account holders to come forward and disclose their assets under the Offshore Voluntary Disclosure Initiative (OVDI).  In December 2013, Bank Leumi, the largest commercial Bank in Israel, sent out a letter to their American clients to come forward under the program.

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 Initiative (OVDI) 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 Initiative (OVDI).  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 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.

IRS Guidance Issued On Bitcoin Tax Reporting Requirements

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Bitcoin has been in the news frequently lately, particularly since the collapse of the Japanese-based Bitcoin exchange, Mt. Gox.  Bitcoin is a digital currency and peer-to-peer payment system created in 2009. Since 2009, the use of bitcoins has expanded significantly.  Bitcoins can be bought and sold for various currencies, generally through a series of online exchanges where participants can bid on bitcoins from individuals or buy them at market price from companies.

The unique characteristics of Bitcoin as a digital currency left many questions about tax reporting requirements, such as whether users of Bitcoin must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).  U.S. taxpayers who have an interest in, or signatory or other authority over a foreign financial account, such as a bank account, securities or other similar foreign accounts must file an FBAR if the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year. As of October 1, 2013 the FBAR form must be filed through the Financial Crimes Enforcement Network’s (FinCEN’s) Bank Secrecy Act E-Filing System on or before June 30th of the year following the calendar year being reported. For example, to report foreign accounts held open in 2013, the taxpayer must file the FBAR by June 30, 2014.

Prior to the Internal Revenue Service’s release of Notice 2014-21 on March 25, 2014, we did not know whether the IRS would treat a virtual currency as currency or property. The IRS has now said – treat it as property. [IRS Information Release IR-2014-36 and Notice 2014-21].  I think that is a good answer. After all, Bitcoin is not used as the currency of any government and generally, are convertible to a currency of a government. For example, you can buy Bitcoin with U.S. dollars and convert it back to U.S. dollars.

So, what does it mean that Bitcoin is property? Here are a few tax examples.

• If you mine Bitcoin, you generate income equal to the value of the Bitcoin when mined. And if you are doing this as a business, you’ll also owe self-employment tax. [See Q&A 8 and 9 of Notice 2014-21].

• If you buy Bitcoin so you can use it instead of dollars, you’ll have some extra recordkeeping to handle. For example, you bought 1 Bitcoin (BTC) when it was worth $700. You later use half of that BTC to buy goods and at that time, 1 BTC is worth $800. You have a $50 gain. A few months later, you use the remaining .5 BTC to buy goods and at the time, 1 BTC is worth $1,000, you will report a gain of $150. The tax principle here is that if your wealth has increased and you cash out that wealth (realize it), you have income. When you can use something you paid $700 for to buy $900 of goods, you have income of $200. This is the same result you’d have if you had converted the Bitcoin back to dollars right before making the purchase of the goods in dollars. [See Q&A 6 and 7 of Notice 2014-21]

• Your employer pays you in Bitcoin. You’ll have income equal to the value of the Bitcoin on the day you receive it. And, yes, the employer will include this income in your W-2. Same answer if you are instead a contractor; it will be included in the Form 1099 your employer gives you. [See Q&A 10-14 of Notice 2014-21]

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide.  The knowing omission of such income can result in a minimum fine of $10,000 and/or potential incarceration of at least 1 year besides the standard civil penalties associated with the increase in tax and interest thereon.  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 who have bitcoins would benefit from the experienced tax attorneys of the Law Office Of Jeffrey B. Kahn, P.C. representing you to avoid the pitfalls associated with failure to comply with the reporting requirements associated with owing bitcoins.

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