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

/in , /by

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

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

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

OVDP requires that taxpayers:

  • File 8 years of back tax returns reflecting unreported foreign source income;

  • File 8 years of back FBAR’s reporting the foreign financial accounts;

  • Calculate interest each year on unpaid tax;

  • Apply a 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651; and

  • Apply up to a 27.5% penalty based upon the highest balance of the account in the past eight years. This is referred to as the “OVDP Penalty”.

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

  • Charges of criminal tax evasion which would have resulted in jail time or a felony on your record; and

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

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

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

1. UBS AG

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

3. Wegelin & Co.

4. Liechtensteinische Landesbank AG

5. Zurcher Kantonalbank

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

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

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

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

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

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

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

Important Signal From IRS That Enforcement Is Imminent.

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

What Should You Do?

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

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

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

Don’t let another deadline slip by! If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed or in 2012 OVDI, you should seriously consider participating in the IRS’s 2014 Offshore Voluntary Disclosure Program (“OVDP”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California qualify you for OVDP.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

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

/in , /by

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

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

Who needs to file this form?

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

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

There are two more conditions that go with this form.

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

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

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

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

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

Common Situations That Will Trigger The $10,000.00 Penalty

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

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

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

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

What Should You Do?

We encourage taxpayers who are concerned about their undisclosed offshore accounts to come in voluntarily before learning that the U.S. is investigating the bank or banks where they hold accounts. By then, it will be too late to avoid the new higher penalties under the OVDP of 50% percent – nearly double the regular maximum rate of 27.5%.

Don’t let another deadline slip by. If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed or you are in the 2012 Offshore Voluntary Disclosure Initiative (“OVDI”), you should seriously consider participating in the IRS’s 2014 Offshore Voluntary Disclosure Program (“OVDP”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California qualify you for OVDP.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

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

/in /by

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

/in , /by

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

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

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

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

FATCA – New Law Of The Land

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

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

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

Withholding Tax

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

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

Direct Disclosure

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

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

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

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

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

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

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

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

What Should You Do?

If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed or in 2012 OVDI, you should seriously consider participating in the IRS’ 2014 Offshore Voluntary Disclosure Program (“OVDP”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California qualify you for OVDP.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

IRS To Waive Penalties For Some Overseas Accounts

/in , /by

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?

/in , /by

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

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

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

OVDP requires that taxpayers:

  • File 8 years of back tax returns reflecting unreported foreign source income;

  • File 8 years of back FBAR’s reporting the foreign financial accounts;

  • Calculate interest each year on unpaid tax;

  • Apply a 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651; and

  • Apply up to a 27.5% penalty based upon the highest balance of the account in the past eight years. This is referred to as the “OVDP Penalty”.

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

  • Charges of criminal tax evasion which would have resulted in jail time or a felony on your record; and

  • Other fraud and filing penalties including IRC Sec. 6663 fraud penalties (75% of the unpaid tax) and failure to file a TD F 90-22.1 (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.

Potential Savings Using The 2014 OVDP Streamlined Procedures

/in , /by

On June 18, 2014, the IRS announced major changes in the 2012 offshore account compliance programs, providing new options to help taxpayers residing in the United States and overseas. The changes are anticipated to provide thousands of people a new avenue to come back into compliance with their tax obligations.

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

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

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

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

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

Both versions require that taxpayers:
a. Certify that the failure to report the income from a foreign financial asset and pay tax as required by U.S. law, and failure to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, resulted from non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.
b. File 3 years of back tax returns reflecting unreported foreign source income;
c. File 6 years of back FBAR’s reporting the foreign financial accounts; and
d. Calculate interest each year on unpaid tax.

In return for entering the streamlined offshore voluntary disclosure program, the IRS has agreed:
a. Possible waiver of charges of criminal tax evasion which would have resulted in jail time or a felony on your record;
b. Possible waiver of other fraud and filing penalties including IRC Sec. 6663 fraud penalties (75% of the unpaid tax) and failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50% of the foreign account balance); and
c. Possible waiver of the 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651.

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

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

Case Example:

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

What liabilities does Raj face under the Internal Revenue Code?
1. Back taxes, interest and 20% accuracy related penalty for the unreported interest income going back at least three years.
2. FBAR penalties of $10,000 per account per year (going back 6 years results in a $60,000 penalty).

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

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

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

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

What Should You Do?

We encourage taxpayers who are concerned about their undisclosed offshore accounts to come in voluntarily before learning that the U.S. is investigating the bank or banks where they hold accounts. By then, it will be too late to avoid the new higher penalties under the OVDP of 50% percent – nearly double the regular maximum rate of 27.5%.

Don’t let another deadline slip by. If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed or you are in the 2012 Offshore Voluntary Disclosure Initiative (“OVDI”), you should seriously consider participating in the IRS’s 2014 Offshore Voluntary Disclosure Program (“OVDP”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California qualify you for OVDP.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

Disadvantages Of The 2014 OVDP Streamlined Procedures

/in , /by

On June 18, 2014, the IRS announced major changes in the 2012 offshore account compliance programs, providing new options to help taxpayers residing in the United States and overseas. The changes are anticipated to provide thousands of people a new avenue to come back into compliance with their tax obligations.

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

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

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

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

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

Both versions require that taxpayers:
a. Certify that the failure to report the income from a foreign financial asset and pay tax as required by U.S. law, and failure to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, resulted from non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.
b. File 3 years of back tax returns reflecting unreported foreign source income;
c. File 6 years of back FBAR’s reporting the foreign financial accounts; and
d. Calculate interest each year on unpaid tax.

In return for entering the streamlined offshore voluntary disclosure program, the IRS has agreed:
a. Possible waiver of charges of criminal tax evasion which would have resulted in jail time or a felony on your record;
b. Possible waiver of other fraud and filing penalties including IRC Sec. 6663 fraud penalties (75% of the unpaid tax) and failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50% of the foreign account balance); and
c. Possible waiver of the 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651.

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

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

Disadvantages Of The 2014 OVDP Streamlined Procedures.

While the lower penalty rate is attractive, you need to consider whether this benefit outweighs the possible risks.

Closing Letter Not Issued. Under the traditional Voluntary Disclosure Program, a civil Revenue Agent will be assigned to review the amended income tax returns and delinquent FBAR’s. Upon the completion of the agent’s review a Closing Package will be issued and the case closed. Under the streamlined program, the IRS will set aside your submission and reserve up to three years to assign it to and agent for review. Only if the submission is not pulled for review in the next three years, could you consider the case to be closed.

Submissions Never Receive Final Clearance For The Criminal Investigation Division. Under the traditional Voluntary Disclosure Program, a taxpayer first registers and seeks clearance from the Criminal Investigation Division before amended income tax returns and delinquent FBAR’s are filed. Under the streamlined program, CID is completely bypassed so if IRS were to later determine that a criminal investigation is warranted, your case can be referred to CID.

Certification Of Non-Willfulness Could Be Used Against Taxpayer. Under the traditional Voluntary Disclosure Program, a taxpayer does not sign under penalties of perjury that he or she did not act willfully. Under the streamlined program, this Certification must be submitted before the IRS ever evaluates the submission. If the IRS later determines that this Certification is false, you can also be charged with making a false statement to the IRS.

Work Product Produced By Non-Attorneys Is Not Privileged. Under the traditional Voluntary Disclosure Program, the IRS early on determines whether the case is to be administered by the Criminal Investigation Division or the Civil Division. Under the streamlined program, this decision is deferred until sometime after the full submission of documents is filed. By then it would be too late if your case is instead referred for criminal investigation to prevent disclosure of work product by non-attorneys or your communications with non-attorneys. By engaging a tax attorney experienced in voluntary disclosures of offshore accounts at the beginning, can you insure that this work product and these communications remain privileged and are unavailable to IRS.

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.

Advantages Of The 2014 OVDP Streamlined Procedures

/in , /by

On June 18, 2014, the IRS announced major changes in the 2012 offshore account compliance programs, providing new options to help taxpayers residing in the United States and overseas. The changes are anticipated to provide thousands of people a new avenue to come back into compliance with their tax obligations.

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

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

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

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

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

Both versions require that taxpayers:
a. Certify that the failure to report the income from a foreign financial asset and pay tax as required by U.S. law, and failure to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, resulted from non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.
b. File 3 years of back tax returns reflecting unreported foreign source income;
c. File 6 years of back FBAR’s reporting the foreign financial accounts; and
d. Calculate interest each year on unpaid tax.

In return for entering the streamlined offshore voluntary disclosure program, the IRS has agreed:
a. Possible waiver of charges of criminal tax evasion which would have resulted in jail time or a felony on your record;
b. Possible waiver of other fraud and filing penalties including IRC Sec. 6663 fraud penalties (75% of the unpaid tax) and failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50% of the foreign account balance); and
c. Possible waiver of the 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651.

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

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

Advantages Of The 2014 OVDP Streamlined Procedures.

The changes implemented by IRS for the 2014 OVDP Streamlined Procedures are meant to encourage more taxpayers with non-disclosed foreign bank accounts to come forward into compliance.

Reduced OVDP Penalty. Under the traditional Voluntary Disclosure Program, a taxpayer would be subject to an OVDP penalty as high as 27.5%. Under the streamlined program, the OVDP penalty is 5% for taxpayers in the U.S. and 0% for taxpayers outside the U.S.

Shorter Period For Filing Amended Tax Returns And Delinquent FBAR’s. Under the traditional Voluntary Disclosure Program, a taxpayer would have to go back as far as eight years to amend income tax returns and FBAR’s. Under the streamlined program, a taxpayer would have to go back as far as three years to amend income tax returns and go back as far as six years to prepare delinquent FBAR’s.

Shorter Measuring Period For The OVDP Penalty. Under the traditional Voluntary Disclosure Program, the OVDP penalty is applied against the highest aggregate foreign asset balance over the last eight years. Under the streamlined program, the look-back period is six years.

No accuracy-related penalty. Under the traditional Voluntary Disclosure Program, any deficiency in the back income taxes would be subject to the 20% accuracy-related penalty under Code Sec. 6662. Under the streamlined program, this penalty is not asserted by IRS.

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.

What You Need To Know About The Eggshell Audit

/in , /by

What is an Eggshell Audit?

An eggshell audit is one in which the taxpayer has filed a fraudulent return in a prior year and the auditor is not aware of potential evidence of civil tax fraud or a criminal tax violation. A tax return is fraudulent if an additional tax is owed due to (i) a deliberate intent to evade tax or (ii) there is a willful and material submission of false statements/documents in connection with the return. It is considered an “eggshell” audit because of the care one must take – i.e. walk on eggshells – to guide the examination and prevent suspicion by the auditor.

What are the Risks of an Eggshell Audit?

A typical IRS audit may lead to a tax deficiency assessment whereby the taxpayer owes the underpaid tax plus interest and penalties. A deficiency is assessed when the underpayment was due to a mistake, inadvertence, reliance on incorrect technical advice, honest difference in opinion, negligence or carelessness. Because an eggshell audit includes a fraudulent tax return, an additional risk exists that the audit could lead to civil fraud penalties and the auditor may even refer the case to the IRS Criminal Investigation Division (CID) to pursue criminal tax fraud. If this eventually leads to the filing of criminal charges for tax evasion, your freedom may now be at stake.

What are the Differences Between Civil Tax Fraud and Criminal Tax Fraud?

Technically, the difference is the degree of proof required. Civil fraud cases require the government to prove fraud by clear and convincing evidence. Criminal tax fraud cases require the government to present sufficient evidence to prove guilt beyond a reasonable doubt. Clear and convincing evidence must prove that something is highly probable or reasonably certain, whereas evidence that is beyond a reasonable doubt can leave no doubt that would cause uncertainty in the mind of the person examining the evidence.

Civil fraud results in remedial action taken by the government such as assessing the correct tax and imposing fraud penalties such as fines. These civil fraud fines are generally greater than those associated with a tax deficiency and are owed in addition to the deficiency penalties. Furthermore, interest accrues on the penalty from the due date of the return. If convicted, criminal tax fraud includes the possibility of imprisonment in addition to the unpaid taxes, interest, and penalties. A tax fraud offense may result in both civil and criminal penalties.

What is the Role of a Tax Attorney in an Eggshell Audit?

An auditor is supposed to protect your rights as a taxpayer. However, an auditor is unlikely to inform you if the examination escalates from a civil examination to a criminal investigation. In fact, there can be an ongoing criminal investigation being carried out in conjunction to the audit and the auditor is collecting evidence for the criminal investigation. This is known as a “reverse eggshell audit”. Even if there is no concurrent criminal investigation, an auditor may nonetheless be conducting an examination with the objective of gathering evidence to establish proof of fraud without your knowledge. A tax attorney can intervene at any stage of the audit, ensure that the audit is conducted properly, and limit your future exposure.

Every U.S. citizen has a constitutional right against self-incrimination. An experienced tax lawyer will guide the examination in a way that protects that right while ensuring that any information provided to the auditor is truthful. This ensures that you don’t have to ever speak directly with any representative from the IRS.

A tax lawyer who specializes an IRS audit representation will navigate the taxpayer through the landmines of an eggshell audit. An audit can quickly (and unknowingly to the taxpayer) become a civil or criminal fraud investigation. This risk of additional penalties and imprisonment requires the expertise of a tax lawyer who can help mitigate such consequences. Even if the audit becomes a criminal fraud case, a tax attorney may be able to suppress evidence from the investigation if the taxpayer’s rights were violated.

An experienced tax attorney should provide vital assistance during the important time of preparation leading up to the audit. As a taxpayer facing an eggshell audit, you may have possession of documents that could, if disclosed to the IRS, potentially expose you to significant civil penalties or criminal prosecution. In order to prepare the best defense for you, a tax attorney will work with you to identify this information and make sure it is protected. Again, it is essential to partner with legal counsel on this matter, not your tax preparer, to ensure that the disclosures of sensitive information fall under the umbrella of the attorney-client privilege.

Eggshell audits are potentially dangerous matters for you and your business, as the ability to minimize the scope and context of the IRS’ investigation may mean the difference between a manageable civil penalty and criminal charges or fraud-related penalties.

What should you do?

Through the use of proper strategic planning, the eggshell audit may present an opportunity for the taxpayer to avoid potential criminal liability, and prevent an unpleasant situation from becoming exponentially worse. 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 has the knowledge and experience regarding eggshell audits to offer our clients the best representation in these matters. We have the tools and techniques to effectively handle eggshell audits, and reduce the chances of criminal action by the IRS.

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.