Global Tax Chiefs Meet To Tackle International Tax Evasion

Global Tax Chiefs Meet To Tackle International Tax Evasion

The Joint Chiefs of Global Tax Enforcement, known as the J5, which was formed in mid-2018 to lead the fight against international tax crime and money laundering met this week. This group brings together leaders of tax enforcement authorities from Australia, Canada, the United Kingdom, the United States and the Netherlands.

These tax authorities believe that people may be using a sophisticated system to conceal and transfer wealth anonymously to evade their tax obligations and launder the proceeds of crime.

The IRS announced that significant information was obtained as a result and investigations are ongoing. It is expected that further criminal, civil and regulatory action will arise from these actions in each country.

For the United States: Don Fort, U.S. Chief, Internal Revenue Service Criminal Investigation, stated:

This is the first coordinated set of enforcement actions undertaken on a global scale by the J5 – the first of many. Working with the J5 countries who all have the same goal, we are able to broaden our reach, speed up our investigations and have an exponentially larger impact on global tax administration. Tax cheats in the US and abroad should be on notice that their days of non-compliance are over.”

Penalties for Non-Compliance.

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

Civil Fraud – If your failure to file is due to fraud, the penalty is 15% for each month or part of a month that your return is late, up to a maximum of 75%.

Criminal Fraud – Any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).

The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).

Additionally, the penalties for FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. For non-willful violations, it is $10,000.00 per account per year going back as far as six years. For willful violations, the penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

Lastly, failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40% penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.

Voluntary Disclosure

Since September 28, 2018, the IRS discontinued the Offshore Voluntary Disclosure Program (OVDP); however, on November 20, 2018 the IRS issued guidelines by which taxpayers with undisclosed foreign bank account and unreported foreign income can still come forward with a voluntary disclosure.   The voluntary disclosure program is 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 or foreign in income. In general, voluntary disclosures will include a six-year disclosure period. The disclosure period will require examinations of the most recent six tax years so taxpayers must submit all required returns and reports for the disclosure period. Click here for more information on available Voluntary Disclosure Programs.

What Should You Do?

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.

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 criminal prosecution or programs with reduced civil penalties. Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California help ensure that you are in compliance with federal tax laws. Additionally, if you are involved in cannabis, check out what a cannabis tax attorney can do for you. And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

IRS Announces Program For U.S. Expats To Come Into Compliance With Their U.S. Tax And Filing Obligations

IRS Announces Program For U.S. Expats To Come Into Compliance With Their U.S. Tax And Filing Obligations

On September 6, 2019 the IRS announced procedures for certain persons who have relinquished, or intend to relinquish, their United States citizenship and who wish to come into compliance with their U.S. income tax and reporting obligations and avoid being taxed as a “covered expatriate” under Code Sec. 877A.

The Relief Procedures for Certain Former Citizens apply only to individuals who have not filed U.S. tax returns as U.S. citizens or residents, owe a limited amount of back taxes to the United States and have net assets of less than $2 million. Only taxpayers whose past compliance failures were non-willful can take advantage of these new procedures. For those expat-individuals who missed the opportunity to come forward in the IRS’ Offshore Voluntary Disclosure Program (“OVDP”), this is a huge opportunity. Many in this group may have lived outside the United States most of their lives and may have not been aware that they had U.S. tax obligations.

U.S. Taxation Of Worldwide Income

The 14th Amendment to the United States Constitution provides that “all persons born or naturalized in the United States” are citizens of the United States.  With very limited exceptions for individuals born in the United States with diplomatic agent level immunity, all persons born in the United States acquire U.S. citizenship at birth. A person born abroad to a U.S. citizen parent or parents acquires U.S. citizenship at birth if the parent or parents meet conditions specified in the U.S. Immigration and Nationality Act (Section 301 and following sections).

Some U.S. citizens, born in the United States to foreign parents or born outside the United States to U.S. citizen parents, may be unaware of their status as U.S. citizens or the consequences of such status.  By law, U.S. citizens, regardless of whether they live in the United States or abroad, are required to report and pay to the IRS all applicable taxes on their worldwide income, including on their income from foreign financial assets.

With the passage of the Foreign Account Tax Compliance Act (“FATCA”) on March 18, 2010, foreign financial institutions are generally required to determine whether their customers are U.S. citizens and, if so, report certain information about the customer’s account. Depending on when the account is opened, the customer may be identified by the financial institution as a U.S. citizen based on certain indicia, such as a place of birth in the United States. A customer who is identified as a U.S. citizen based on U.S. indicia must provide to the financial institution either his or her Social Security Number (“SSN”), or if the customer is no longer a U.S. citizen, documentation to rebut the determination, such as proof of loss of U.S. citizenship. A customer opening a new account with a foreign financial institution is generally required to provide a self-certification upon account opening, which includes the customer’s name, address, and SSN.

New Relief Procedures For Expats

Eligible individuals wishing to use these relief procedures are required to file outstanding U.S. tax returns, including all required schedules and information returns, for the five years preceding and their year of expatriation. Provided that the taxpayer’s tax liability does not exceed a total of $25,000 for the six years in question, the taxpayer is relieved from paying U.S. taxes and they will not be assessed penalties and interest.  

The IRS is offering these procedures without a specific termination date. The IRS will announce a closing date prior to ending the procedures. Individuals who relinquished their U.S. citizenship any time after March 18, 2010, are eligible so long as they satisfy the other criteria of the procedures.

These procedures are only available to individuals. Estates, trusts, corporations, partnerships and other entities may not use these procedures.

These procedures may only be used by taxpayers whose failure to file required tax returns (including income tax returns, applicable gift tax returns, information returns (including Form 8938, Statement of Foreign Financial Assets), and Report of Foreign Bank and Financial Accounts (FinCEN Form 114, formerly Form TD F 90-22.1)) and pay taxes and penalties for the years at issue was due to non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

U.S. Penalties for Non-Compliance.

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

Civil Fraud – If your failure to file is due to fraud, the penalty is 15% for each month or part of a month that your return is late, up to a maximum of 75%.

Criminal Fraud – Any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).

The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).

Additionally, the penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. For non-willful violations, it is $10,000 per account per year going back as far as six years. For willful violations, the penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

Lastly, failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40% penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.

What Should You Do?

For those expat-individuals who missed the opportunity to come forward in the IRS’ Offshore Voluntary Disclosure Program (“OVDP”), this is a huge opportunity. Relinquishing U.S. citizenship and the tax consequences that follow are serious matters that involve irrevocable decisions. Taxpayers who relinquish citizenship without complying with their U.S. tax obligations are subject to the significant tax consequences of the U.S. expatriation tax regime. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California help ensure that you are in compliance with federal tax laws. Also, if you are involved in cannabis, check out how our cannabis tax attorneys can help you. By the way – if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

 

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

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

Why Taxpayers Involved In Offshore Accounts, Crypto Currency Or Cannabis Should Be Filing An Extension For Their 2017 Income Tax Returns

Why Taxpayers Involved In Offshore Accounts, Crypto-Currency Or Cannabis Should Be Filing An Extension For Their 2017 Income Tax Returns

U.S. Taxpayer Reporting Requirements for Foreign Income Producing Real Estate

U.S. taxpayers, who include U.S. Citizens or resident aliens, must report worldwide income from whatever source, subject to the same income tax filing requirements that apply to U.S. Citizens or resident aliens living in the U.S.  This worldwide income reporting requirement also applies to rental proceeds generated by real estate the taxpayer owns and rents in a foreign country.  A U.S. Taxpayer also must report on his or her U.S. Federal Income Tax Return the sale of real estate located in a foreign country.

A U.S. taxpayer that collects rental income from foreign real estate must report this income on Schedule E, Supplemental Income and Loss.  Schedule E asks for not only the rents received from the rental property, but also allows for deductions of many expenses for the property, such as repairs and mortgage interest paid.  If the taxpayer claims depreciation expenses of the rental property, the taxpayer may be required to file Form 4562, Depreciation and Amortization.

If the Schedule E shows a loss after deducting the allowable expenses from your rental income, complex passive activity loss limitations come into play in filing Form 8582, Passive Activity Loss Limitations.  Whether you can use the real estate loss to offset your other income depends on whether the real estate rental is considered a “passive activity.”  Generally, rental real estate is a passive activity, unless the taxpayer can meet certain qualifications to consider the rental activity as active.

Ownership of specified foreign assets, such as foreign bank accounts, often triggers certain tax reporting requirements.  For example, a U.S. taxpayer who owns a foreign account must file a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year.  Many taxpayers will also be required to file a Form 8938, Statement of Specific Foreign Financial Assets with his or her annual tax return depending on some specific threshold values.

Ownership of real estate generally does not trigger these additional reporting requirements.  However, if the real estate is held through a foreign entity, such as a trust or estate, then the foreign rental property must be reported on Form 8938, subject to the threshold values.  Additional reporting requirements come into play as well if the real estate is held through a trust or estate, including completing Part III of Schedule B, Interest and Ordinary Dividends.

Penalties

Failure to report your foreign rental income, to accurately report the income on your tax return, or to complete Form 8938 when necessary could expose the taxpayer to many penalties, including a failure-to-file penalty of $10,000, criminal penalties, and if the failure to file results in underpayment of tax, an accuracy-related penalty equal to 40% of the underpayment of tax and a fraud penalty equal to 75% of the underpayment of tax.

The reporting requirements for foreign rental real estate can become very complex and advanced for most taxpayers.  U.S. taxpayers who own income-generating real estate in a foreign country 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 foreign real estate.

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.

 

Taxpayer Reporting Requirements for Foreign Real Estate

Many U.S. taxpayers do not realize that they must report their worldwide income, regardless of whether they are living in the U.S. or abroad.  If you are a U.S. Citizen or resident alien, you must report your worldwide income from whatever source, subject to the same income tax filing requirements that apply to U.S. Citizens or resident aliens living in the U.S.

This worldwide income reporting requirement also applies to income, such as rental proceeds, generated by real estate the taxpayer owns in a foreign country.  A U.S. Taxpayer also must report on his or her U.S. Federal Income Tax Return the sale of real estate located in a foreign country.

Ownership of specified foreign assets, such as foreign bank accounts, often triggers certain tax reporting requirements.  For example, a U.S. taxpayer who owns a foreign account must file a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year.  Many taxpayers will also be required to file a Form 8938, Statement of Specific Foreign Financial Assets with his or her annual tax return depending on some specific threshold values.

Ownership of real estate, however, does not trigger these additional reporting requirements.  As discussed above, a U.S. taxpayer will need to report any income generated from ownership or sale of the real estate.  However, if the taxpayer merely owns real estate in a foreign country as a second or vacation home and does not generate income from the property, the taxpayer is not required to report this asset to the IRS.

U.S. taxpayers who own income-generating real estate in a foreign country 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 foreign real estate.

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.