Advantages Of The 2014 OVDP Streamlined Procedures

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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

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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.

It’s A Small World After All – Number Of FATCA Compliant Countries Continues To Grow To Meet July 1, 2014 Deadline

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Under the Foreign Account Tax Compliance Act (“FATCA”), foreign banks, insurers and investment funds must send the Internal Revenue Service information about Americans’ and U.S. permanent residents’ offshore accounts worth more than $50,000. Institutions that fail to comply could effectively be frozen out of U.S. markets. As of this blog posting, the U.S. has entered into Intergovernmental Agreements (“IGA’s”) with 38 countries for the implementation of FATCA.

The 38 countries with IGA’s already in place are:

Australia Denmark Isle of Man Mexico
Austria Estonia Italy Netherlands
Belgium Finland Jamaica New Zealand
Bermuda France Japan Norway
British Virgin Islands Germany Jersey South Africa
Canada Gibraltar Latvia Spain
Cayman Islands Guernsey Liechtenstein Slovenia
Chile Hungary Luxembourg Switzerland
Costa Rica Honduras Malta United Kingdom
Ireland Mauritius

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

Algeria Czech Republic Malaysia Serbia
Antigua Cyprus Montenegro Seychelles
Armenia Dominica Moldova Singapore
Azerbaijan Dominican Republic Nicaragua Slovak Republic
Bahamas Georgia Panama South Korea
Bahrain Greenland Paraguay Sweden
Barbados Grenada Peru Taiwan
Barbuda Guyana Poland Thailand
Belarus Haiti Portugal Turkey
Brazil Hong Kong Qatar Turkmenistan
Bulgaria India Romania Turks and Caicos Islands
Cabo Verde Indonesia St. Kitts and Nevis Ukraine
China Iraq St. Lucia United Arab Emirates
Colombia Kosovo St. Vincent and the Grenadines
Croatia Kuwait San Marino
Curaçao Lithuania Saudi Arabia

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

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

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

If you have never reported your foreign investments on your U.S. Tax Returns, 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 Diego, San Francisco 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.

How A Tax Attorney Can Get You Out Of An IRS Audit

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If you are faced with an IRS audit you should seriously consider hiring an experienced tax attorney to represent you and pursue an effective strategy to obtain the best possible outcome. There are certain IRS policies and tax procedures that if argued appropriately could result in your audit being terminated before it ever gets started. Some of the things that an experienced tax attorney will consider:

IRS Policy To Avoid Repetitive Examinations

An initial consideration is whether the taxpayer’s audit violates the IRS’s policy against repetitive examinations. The policy against repetitive examinations applies when the taxpayer has been audited in the past two years, and the audits resulted in essentially no change. By showing that the requirements of the repetitive examinations policy are met, the audit can be resolved and closed at this very early stage.

IRS Policy To Avoid Reopening Examinations

The IRS generally does not reopen closed cases but this can occur in rare cases and under very limited circumstances. If the IRS tries to reopen a closed case, an experienced tax attorney would ensure that the IRS is following its own procedures and regulations regarding to reopening closed IRS examinations and seek to show that these own procedures and regulations when applied to your case do not warrant that the IRS audit be reopened.

Statutes of Limitation Applying to IRS Audits

Generally, the IRS can include returns filed within the last three years in an audit. However, there are provisions in the tax code that allow the IRS to expand an audit to include additional tax years if the examination reveals a need to look into the taxpayer’s tax situation in previous years. At the same time, this right of the IRS to examine additional years but be tempered by an opposing requirement that the examination of the taxpayer’s tax return be reasonable. Internal Revenue Code section 7605(b) states that only one inspection shall be made of a taxpayer’s books of account for each taxable year. IRC Sec. 7605(b) also provides that no taxpayer shall be subjected to unnecessary examinations or investigations of his or her tax liability.

Formulating an Audit Strategy

If the three rules above do not apply to your case and an IRS audit is going to take place, it is imperative to promptly devise a strategy for dealing with specifics of the examination and communicating with IRS personnel. An experienced tax attorney will initially evaluate your situation and identify any potential weaknesses or exposure points. With regard to exposure points and weaknesses, your tax lawyer would then develop a strategy for handling those sensitive and vulnerable aspects of your tax situation. From the taxpayer’s perspective, a realistic attitude and outlook must be established, including the consideration of possible settlement of the audit with the IRS at some point down the road. Your tax lawyer should also discuss the possibility of tax litigation and prepare potential issues with an eye toward eventual litigation in Tax Court. Often times the best results can be achieved at the appellate level, but only if the appellate officer believes that you will go to Tax Court if necessary to achieve the best result.

What should you do?

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

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

Have You Been Subpoenaed To Appear Before A Grand Jury?

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Federal grand juries have a maximum of 23 members, 16 of whom must be present to form a quorum. Indictments are returned by a vote of 12 or more members. Federal grand juries typically sit for a term of 18 months and meet at regular intervals. Grand juries can use the court’s power to subpoena evidence.  A subpoena (which translates, essentially, as “subject to sanction”) commands someone to do something.  The subpoenas are actually issued by the court clerk’s office.

The prosecutor will go to the court clerk’s office and obtain blank subpoenas.   The prosecutor then fills them in, putting in the name of the person or corporation that is being subpoenaed, and telling them what they have to do (testify or produce documents) and when they have to do it.  The prosecutor then has someone–often a police officer or federal marshal–serve the subpoena on the person the government seeks to compel.

Someone who receives a subpoena from a grand jury has three choices:  (1) comply with the subpoena; (2) convince a court that he or she does not have to comply with it; or (3) refuse to comply and be held in contempt.

You comply with a grand jury subpoena by doing what it tells you to do. If it says you are to show up before the grand jury at a given time on a specified date and testify, you do that. If it says you are to show up at that date and time and produce documents or other evidence for the grand jury to review, you do that. 

If you think you shouldn’t have to comply with the subpoena, you would need to persuade the court to quash the subpoena. The two main defenses to quash a grand jury subpoena would be that by that making you comply with it would violate your constitutional rights or that what it asks you to do is “unreasonable or oppressive”. Usually though the court in such actions will usually modify the subpoena so that you are ordered to answer questions that do not violate your constitutional rights and ordering that the grand jury does not ask questions that if answered would violate your constitutional rights. Where you are claiming that the subpoena is unreasonable or oppressive the Court usually will modify the subpoena so that you will be able to do what it tells you to do.

If you simply refuse to do what the subpoena orders you to do, the prosecutor, acting on behalf of the grand jury, will ask the court to hold you in civil contempt.  Unless you have a very good reason for not complying, the court will do so. 

Civil contempt is not a crime.   It is, instead, a way the court coerces you into doing what the grand jury wants you to do.  Once you’re held in civil contempt, you will be locked up until you agree to comply with the subpoena or until the grand jury’s term ends, whichever comes first.   Once the grand jury has been dissolved, the subpoena is no longer valid and you can’t be held in contempt.  Of course, a prosecutor can re-subpoena you to testify before a new grand jury and if again you refuse, you can be held in civil contempt and locked up until that grand jury’s term ends, which could be another year and a half or even two.

Here are 9 tips you must know about the federal grand jury.

1. Keep Your Attorney Close At Hand. Your lawyer can’t be with you in the grand jury room, but he can be right outside the room and you have the right to consult with him after each and every question. In fact, you can spend as much time as you need conferring with your lawyer, as long as you are not attempting to disrupt the grand jury process. You can also leave the grand jury room in order to brief your attorney about the questions being asked and your responses. In most federal jurisdictions you can also take notes of any questions asked during the grand jury session. These can later be shared with your attorney.

2. Don’t Agree to Interviews With The Government Before Your Appearance. You are under no obligation to talk to government agents before the grand jury process begins. Some Assistant United States Attorneys trick unrepresented persons into interviewing with federal agents prior to the beginning of the grand jury session. The letter accompanying the witness’ subpoena may ask or direct the witness to appear an hour or two early at the grand jury room or the U.S. Attorney’s Office. These pre-grand jury interviews are dangerous and ill-advised and the government has no authority to compel them. You may make a harmful admission during one of these interviews. In addition, you may be accused of lying to a government agent during the interview. Lying to government agents during an interview, like lying to the grand jury, is a federal crime. At the grand jury session, however, there will be an official recording and/or transcript of the proceedings, so there will be no dispute about what you say. The pre-grand jury agent interview will not be recorded. Two federal agents will take notes of what you say and it will be their word against yours in the event of a dispute.

3. Don’t Be Bullied Or Misled About Grand Jury Secrecy. Federal grand jurors, grand jury court reporters and the prosecutors running the grand jury are under a strict duty to keep any “matter occurring before the grand jury” a secret. This duty is codified in Rule 6(e) of the Federal Rules of Criminal Procedure. Violations of this rule can result in sanctions or criminal contempt charges against a prosecutor. But the rule of secrecy does not apply to federal grand jury witnesses. If you are a grand jury witness, you have the right to tell the whole world about your grand jury testimony. Of course, it may not be in your interest to do this-you may want to keep your appearance before the grand jury under close wraps. You need to understand, however, that it is your call and not the government’s. It does not matter even if the federal prosecutor attaches a cover letter to the grand jury subpoena, informing the witness that revealing the contents, or even the existence, of the subpoena “may impede” a criminal investigation. An experienced criminal tax defense attorney knows how to respond to such requests or demands made by the federal prosecutor.

4. Insist On Grand Jury Secrecy For The Government. Recall that Rule 6(e) prohibits the government from revealing “a matter occurring before the grand jury.” This prohibition of course covers the content of grand jury testimony. But it goes much further. The government cannot even reveal that you appeared before the grand jury or that you have been subpoenaed or scheduled to appear. Many prosecutors and agents get sloppy about this and reveal that a person or company has been subpoenaed. In addition, some grand juries have waiting rooms where multiple witnesses are invited to wait until they are called. In these situations, each witness is told, in effect, that the other witnesses waiting with him have been summoned to appear “before the grand jury.” On other occasions, members of the press, who know what day the federal grand jurors meet, have been tipped off to be at the courthouse entrance, so that they can see a grand jury witness enter and draw the obvious conclusion. An experienced criminal tax defense attorney should be vigilant in guarding against these abuses and should put the federal prosecutors handling your appearance on notice not to violate grand jury secrecy with such maneuvers.

5. Let Your Attorney Accept Service Of The Subpoena. Your attorney should arrange with the prosecutor to accept service of the grand jury subpoena on your behalf. This spares you the embarrassment of being personally served by FBI agents at your home or in the workplace. What if the agents don’t know or care that you have an attorney, and decide to serve you personally anyway? You should politely accept service, tell the agents that you have an attorney, and decline to answer any and all substantive questions about the case. Refer all questions to your attorney. What if you don’t yet have an attorney when you are personally served with the grand jury subpoena? Politely accept service and tell the agents that you will decline to answer any substantive questions until you have had the opportunity to obtain an attorney. You are under no obligation to do anything other than accept service of the subpoena. If you say anything at all about the case to the agent you could be making dangerous admissions that may be used against you at a later time. For example, let’s say that you are being investigated in connection with an alleged tax fraud scheme involving foreign trust accounts. Assume that there are no documents which on their face tie you to any such trust accounts. Then an FBI Special Agent (or an IRS Criminal Investigation Division Special Agent) serves you with a grand jury subpoena for all records related to those foreign trust accounts. When she serves the subpoena, the agent asks: “Are you going to cooperate?” You respond: “Yes, I’ll cooperate. You’ll get the documents.” What have you done? You have just admitted to the government that you possess or have access to the foreign trust account documents. You have in effect acknowledged a connection between yourself and the foreign trusts. If you instead respond to the agent as follows: “I’m sorry, but I have an attorney and she will be contacting you,” you have admitted nothing.

6. Learn The Difference Between Types Of Grand Jury Subpoenas. Federal grand jury subpoenas are for (a) testimony (ad testificandum); (b) documents or objects (duces tecum); or (c) both. The face of the subpoena will inform you which type of subpoena you received. You will be subpoenaed as an individual or as a custodian of records for a business entity. In many instances, individuals have the right to refuse to answer grand jury questions by invoking the Fifth Amendment’s Privilege against Self-Incrimination. Corporations and other business entities, however, cannot invoke this privilege. But since a corporation operates through human agents, it must designate a custodian of records when subpoenaed by the federal grand jury. Under Supreme Court case law the corporate custodian is only required to answer a narrow category of questions, related to how the subpoenaed documents were searched for and gathered. If you are properly subpoenaed as a business custodian, it is very important that you limit your answers to this narrow category of questions. Prosecutors love to get corporate custodians into the grand jury room and ask extra questions. These questions might seem innocuous, but they are often very dangerous. You need to have your criminal tax defense lawyer with you for consultation, right outside of the grand jury room, to insure that you are not tricked into answering one question too many. Some federal prosecutors have recently started the practice of issuing one subpoena to a person in that person’s individual capacity and his custodial capacity. This tactic is dangerous, confusing, and, in my view, unauthorized. It is tantamount to issuing one subpoena to two persons or companies. Your criminal tax defense attorney should insist on two separate subpoenas-one for you as an individual and one to the company’s custodian of records.

7. Don’t Testify If You Have Exposure. If you are subpoenaed for testimony in your individual capacity, you may be able to avoid answering substantive questions by invoking the Fifth Amendment’s Privilege against Self-Incrimination. This is true even if you are not a target of the investigation. The right to invoke the Privilege against Self-Incrimination is much broader than most witnesses realize. If a truthful answer to a grand jury question would even tend to incriminate you, you can invoke the privilege and refuse to answer. An answer tends to incriminate you if it furnishes a link in the chain that might lead to your conviction. Can a person who is totally innocent of wrongdoing invoke the privilege? Absolutely! The Supreme Court has ruled that the privilege protects the innocent as well as the guilty. An innocent person wants to invoke the privilege to keep from being ensnared by a mistaken, incompetent, or unscrupulous prosecutor. By consulting with an experienced criminal tax defense attorney, you should not fall into such a trap.

8. Review Your Prior Testimony. Some federal prosecutors like to call witnesses back to the grand jury to testify on multiple occasions. This is dangerous, because it can cause you to inadvertently give inconsistent testimony under oath. Under §1623(c) of the federal criminal code, the government can prosecute you for testifying to two irreconcilably contradictory statements under oath, and the government does not even have to prove that either of the statements in question was false. When you are called back to the grand jury to testify for a second time, your criminal tax defense attorney should insist on your right to review ahead of time the official transcript of your first session. In this way, you can refresh your recollection as to your earlier testimony, correct any mistakes, and prepare yourself for the upcoming session. The Federal Courts have ruled that grand jury witnesses, even if they have not been called back to testify for a second time, have an inherent right to review a transcript of their earlier testimony.

9. Know If You Are A Witness, Target Or Subject. Other than violating certain testimonial and constitutional privileges, the federal grand jury can pretty much do what it wants so it is important to determine if you are considered to be a witness, a subject or a target. A witness should pose the least risk at the IRS is looking for information to go after someone else. A target is the one that IRS is looking to come after – the IRS does not subpoena targets due to a person’s 5th amendment right against self-incrimination. A subject is someone who at the time is not a target but could become one later on. It is this determination that is most troubling but it is possible and not unusual for cases under suspicion for tax crimes be removed from consideration for criminal prosecution. An experienced criminal tax defense attorney is instrumental in determining whether you are a witness, target or subject.

What Should You Do?

You should never attempt to face these risks without the help of an experienced criminal tax defense attorney. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego, San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

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

Being Careful In Navigating Between Tax Avoidance and Evasion

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Most people think they pay too much in taxes and will do their best to avoid them, but few take that a step further into illegal tax evasion. Such was the case with Christopher B. Berg of Portola Valley, California. Mr. Berg worked as a consultant in 1999 and by 2000, had begun depositing parts of his income into an undisclosed Swiss bank account. After 5 years of doing this, he had transferred more than $640,000 out of the country. That was bad; worse was he used the cash during his trips to Europe, purchasing cars and obtaining cash while travelling. That conduct implicated that he was aware of his obligations to disclose the foreign bank account and report the income earned. On February 26, 2014 he was sentenced to one year and one day in prison followed by three years of supervised release. Prior to the sentencing Mr. Berg paid the IRS $250,000 as well as a $267,896 penalty for hiding the Swiss account he had in 2005.

So as far as tax evasion goes, where is the most peril?

It is fairly difficult to evade taxes on legitimate investments because the IRS can crosscheck the forms supplied by the company and the individual. Where people run afoul of the law is when they cut corners.

One of the most brazen tax dodges is not declaring income. This is difficult for anyone who receives a W-2 or 1099 form for money earned. The IRS receives those forms, too.

But for people in businesses that are cash-based, the temptation to cut corners and the belief that they will get away with it can be greater. I have seen this happen with bars and restaurants where cash has been diverted and literally put it into the backyard. You can’t divert income.

One of the giveaways for an IRS auditor is people living a lifestyle not possible given the amount of income declared. Another is bank accounts that show a deposit record of unreported income.

But the most frequent area for tax evasion for individuals comes from overstating deductions. It takes all forms, including brazen bids to cheat and efforts to push to the line of legality.

Some common examples include claiming too much for car use for work or a home office deduction, overstating charitable deductions and putting dependents on a tax return who are not true dependents. The IRS also scrutinizes returns tax returns showing refundable credits — like the earned income credit for people with children. Problems arise when people provide only partial support for nieces and nephews, or any amount for children who do not exist.

Where the IRS sees the same problems surface on different returns prepared by the same tax preparer, the IRS will go to that tax preparer and say give us every one of your returns for where you took a child care credit (or reported some other tax benefit) and audit them, too.

Another area of potential trouble is for people who lost their jobs in the recession and began working from home. They are entitled to deduct part of their home expenses as business expenses, but the issue is how much. To deter overzealous deductions, the IRS for the 2013 tax year created a standard deduction for a home office of $1,500.

The penalties for pushing tax avoidance into evasion depend on the severity of the offense.

There’s a fine line between conduct that rises to a potential charge for tax evasion and activities that don’t rise to tax evasion. It comes down to burden of proof. There has to be willfulness.

The penalties for criminal tax fraud are the most severe. This is where the most egregious undisclosed foreign bank account cases fall, like the ones when a person created a series of shell companies to mask the ultimate owner of an account. Penalties here include jail time.

The penalties for civil fraud are monetary and structured on a sliding scale, depending on the severity of the offense. But the penalties can run to 75% of the taxes owed. With the undisclosed foreign bank account cases, additional penalties come from not filing forms telling the IRS that a foreign bank account exists.

What should you do?

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

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

Jeffrey B. Kahn, Esq. Discusses Major Changes In IRS Disclosure Programs For Foreign Accounts On ESPN – June 26, 2014 Show

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Topics Covered:

 

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

2. When would I have undisclosed foreign bank accounts?  So when someone has a foreign account, what are the filing requirements? What are the penalties? What is the solution?

3. 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

4. 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 OVDP or do I hire you?

Delinquent International Information Return Submission Procedures

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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.

Taxpayers who do not need to use either OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who (1) have not filed one or more required international information returns, (2) have reasonable cause for not timely filing the information returns, (3) are not under a civil examination or a criminal investigation by the IRS, and (4) have not already been contacted by the IRS about the delinquent information returns can file the delinquent information returns with a statement of all facts establishing reasonable cause for the failure to file.  As part of the reasonable cause statement, taxpayers must also certify that any entity for which the information returns are being filed was not engaged in tax evasion.  If a reasonable cause statement is not attached to each delinquent information return filed, penalties may be assessed in accordance with existing procedures.

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.

Additionally, starting with the 2011 Tax Return Filing Season: U.S. taxpayers who have an interest in foreign assets with an aggregate value exceeding $50,000 must include new Form 8938 (Statement of Specified Foreign Financial Assets) with their Federal income tax return. This reporting will serve as an additional tool for the IRS to determine prior noncompliance of taxpayers who have undisclosed foreign accounts or unreported foreign income. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR (Report of Foreign Bank and Financial Accounts). 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.

For taxpayers currently in the 2012 Offshore Voluntary Disclosure Initiative (“OVDI”) there is a deadline of June 30, 2014 to convert your case to be under the new procedures which could substantially reduce your penalties to 5% and in some cases even eliminate them.

What Should You Do?

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

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

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

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

Delinquent FBAR Submission Procedures

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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.

Taxpayers who do not need to use either OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who (1) have not filed a required Report of Foreign Bank and Financial Accounts (FBAR) (FinCEN Form 114, previously Form TD F 90-22.1), (2) are not under a civil examination or a criminal investigation by the IRS, and (3) have not already been contacted by the IRS about the delinquent FBARs can file the delinquent FBARs with a statement explaining why the FBARs are filed late.  Be aware that the IRS has discretion whether to abate penalties for the failure to file the delinquent FBARs. To qualify for this relief you must have properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

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.

Additionally, starting with the 2011 Tax Return Filing Season: U.S. taxpayers who have an interest in foreign assets with an aggregate value exceeding $50,000 must include new Form 8938 (Statement of Specified Foreign Financial Assets) with their Federal income tax return. This reporting will serve as an additional tool for the IRS to determine prior noncompliance of taxpayers who have undisclosed foreign accounts or unreported foreign income. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR (Report of Foreign Bank and Financial Accounts). 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.

For taxpayers currently in the 2012 Offshore Voluntary Disclosure Initiative (“OVDI”) there is a deadline of June 30, 2014 to convert your case to be under the new procedures which could substantially reduce your penalties to 5% and in some cases even eliminate them.

What Should You Do?

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

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

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

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

Streamlined Filing Compliance Procedures

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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 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.

U.S. Taxpayers Residing Outside the United States

Requires that taxpayers:

  • Meet the applicable non-residency requirement described below (for joint return filers, both spouses must meet the applicable non-residency requirement);

  • 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.

  • File 3 years of back tax returns reflecting unreported foreign source income;

  • File 6 years of back FBAR’s reporting the foreign financial accounts; and

  • Calculate interest each year on unpaid tax.

In return for entering the streamlined offshore voluntary disclosure program, the IRS has agreed:

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

  • 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).

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

  • Waiver of any OVDI penalty.

Non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents (i.e., “green card holders”):  Individual U.S. citizens or lawful permanent residents, or estates of U.S. citizens or lawful permanent residents, meet the applicable non-residency requirement if, in any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not have a U.S. abode and the individual was physically outside the United States for at least 330 full days.  Under IRC section 911 and its regulations, which apply for purposes of these procedures, neither temporary presence of the individual in the United States nor maintenance of a dwelling in the United States by an individual necessarily mean that the individual’s abode is in the United States.  

Non-residency requirement applicable to individuals who are not U.S. citizens or lawful permanent residents:  Individuals who are not U.S. citizens or lawful permanent residents, or estates of individuals who were not U.S. citizens or lawful permanent residents, meet the applicable non-residency requirement if, in any one or more of the last three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not meet the substantial presence test of IRC section 7701(b)(3).  

U.S. Taxpayers Residing in the United States

Requires that taxpayers:

  • 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.

  • File 3 years of back tax returns reflecting unreported foreign source income;

  • File 6 years of back FBAR’s reporting the foreign financial accounts;

  • Calculate interest each year on unpaid tax; and

  • Apply a 5% penalty based upon the highest balance of the account in the past six years.

In return for entering the streamlined offshore voluntary disclosure program, the IRS has agreed:

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

  • 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).

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

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.

Additionally, starting with the 2011 Tax Return Filing Season: U.S. taxpayers who have an interest in foreign assets with an aggregate value exceeding $50,000 must include new Form 8938 (Statement of Specified Foreign Financial Assets) with their Federal income tax return. This reporting will serve as an additional tool for the IRS to determine prior noncompliance of taxpayers who have undisclosed foreign accounts or unreported foreign income. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR (Report of Foreign Bank and Financial Accounts). 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.

For taxpayers currently in the 2012 Offshore Voluntary Disclosure Initiative (“OVDI”) there is a deadline of June 30, 2014 to convert your case to be under the new procedures which could substantially reduce your penalties to 5% and in some cases even eliminate them.

What Should You Do?

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

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

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

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