Deceased Mother’s Undisclosed Foreign Bank Accounts- What to Do?

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Question: My mother just passed away and I inherited $5 million that she kept in offshore bank accounts. The problem is that while she was alive, she did not report the existence of these accounts on the FBAR nor did she report the interest income made on these accounts on her tax returns. What are my reporting obligations, if any? I do not want to get in trouble with the IRS. What should I do?

Answer: It is highly recommended that you come forward and disclose these overseas assets and income to the IRS. The IRS has set up a program called the Offshore Voluntary Disclosure Initiative (OVDI) to allow taxpayers with previously unreported offshore assets and income to come forward and disclose these assets. By voluntarily disclosing these assets, the taxpayer can avoid higher civil penalties that would be imposed if the taxpayer didn’t participate in the program. The taxpayer can also avoid possible criminal prosecution.

The same reporting requirements apply to taxpayers who have inherited previously undisclosed foreign assets. The IRS specifically states that entities such as trusts are eligible to participate in OVDI. (FAQ 13, OVDI 2012).

Not disclosing these inherited assets can lead a taxpayer to suffer the same fate as Henry Seggerman and other members of the Seggerman family. In August 2013, Henry Seggerman pled guilty to charges of tax fraud and evasion for not disclosing over $12 million he and his siblings had inherited from their father who died in 2001. The money was secretly held in Swiss bank accounts. Henry was required to pay $600,000 in restitution and faced up to 11 years in prison. His three siblings had also pled quilty to similar charges and awaited similar fates.

The bright side is that taxpayers who inherit previously undisclosed assets may qualify for a special reduced offshore penalty of 5% if they meet certain conditions. (The standard penalty rate is 27.5%). To qualify for the 5% penalty, the taxpayer must meet all of the following 4 conditions:

(a) he did not open or cause the account to be opened (unless the bank required that a new account be opened, rather than allowing a change in ownership of an existing account, upon the death of the owner of the account); (b) he must have exercised minimal, infrequent contact with the account, for example, to request the account balance, or update accountholder information such as a change in address, contact person, or email address; (c) he must have, except for a withdrawal closing the account and transferring the funds to an account in the United States, not withdrawn more than $1,000 from the account in any year for which the taxpayer was non-compliant; and (d) can establish that all applicable U.S. taxes have been paid on funds deposited to the account (only account earnings have escaped U.S. taxation). (FAQ 52, OVDI 2012).

If you have never reported your foreign investments on your U.S. Tax Returns or you have inherited previously unreported foreign assets, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Description: 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 Insists – No More FATCA Implementation Delays

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U.S. tax authorities and foreign governments are on track to conclude dozens of agreements in coming months on the sharing of financial data about citizens giventhe July 1, 2014 deadline nearing for implementation of a sweeping U.S. anti-tax evasion law – the Foreign Account Tax Compliance Act (FATCA).  If a foreign bank or financial institution falls to comply with FATCA, it could be frozen out of U.S. capital markets. Thus, foreign firms have a big incentive to comply with the law in reporting U.S. account holders.

Lately there have been many rumors about another delay for FATCA. . In fact, some foreign financial institutions as well as some governments say they need more time.  The IRS has already delayed implementation twice and is currently set on a July 1st implementation date.  We believe that the IRS will not allow a third extension and here’s why:

  1. Michael Danilack, IRS Deputy Commissioner, recently announced that FATCA’s July 1, 2014implementation date was not going to be postponed again.  Mr. Danilack is the number two person at IRS and he reaffirmed to his listeners that the IRS will be ready for FATCA implementation on July 1st.
  2. Thereafter the top IRS boss, Commissioner John Koskinen, made it crystal clear saying “We’re not going to have any delays.  We expect to issue the final package of rules shortly. We are working diligently to finalize all related guidance to ensure that financial institutions have time to effectively prepare and comply, and there is no consideration for a delay of FATCA implementation.”

With such strong words from the number one and two people in the IRS, it is clear the IRS is fully committed to the July 1st start date.

FATCA is hugely unpopular among foreign banks but Congress passed the law for a reason – many foreign banks were helping Americans evade taxes. While the law may be flawed, we doubt it will be repealed.

With or without FATCA, Americans, dual nationals, expats and green card holders remain obligated to report their offshore accounts. The penalties for failure to report required FBARs (Report of Foreign Bank and Financial Accounts) are tied to the Bank Secrecy Act which has been on the books since 1970. FATCA has no bearing on those penalties or the duty to file FBAR forms.Under current banking law – not FATCA – the penalties are up to the greater of $100,000 or 50% of the highest historical account balance. These are not hypothetical maximums; these are penalties routinely imposed by the IRS which they can charge without court action.

So what does this mean for taxpayers with undisclosed foreign accounts?

It means time is running out and we recommend quick action. With the fiscal challenges face by the U.S. government, the IRS and Justice Department are committedto uncover unreported foreign accounts and missing FBARswhich will be a lot easier once the foreign banks will start handing over data about American account holders.Although the IRS has an amnesty and expat reporting options available, those deals are off the table if the IRS finds your account first.

If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS.  Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

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

The Foreign Tax Credit- Avoiding Double Taxation

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If you paid or accrued foreign taxes to a foreign government on foreign source income that is still subject to U.S. tax, you may be able to take either a credit or itemized deduction for those taxes.  The IRS allows the foreign tax credit so that you are not doubly taxed on the same income.

Taken as a deduction, the foreign income taxes reduce your U.S. taxable income.  Taken as a credit, foreign income taxes reduce your tax liability.  Most of the time, it is more advantageous to take foreign income taxes as a tax credit.

To claim the foreign tax credit, you need to fill out IRS Form 1116 unless the amount of credit you are claiming is $300 or less ($600 if married filing a joint return).

The laws regarding the foreign tax credit are complex and the application of the foreign tax credit can vary depending on various factors.  For example, if you have foreign sourced qualified dividends or capital gains or capital losses that will affect the amount of foreign tax credit you can take.

Also, the U.S. has different tax treaties with other countries that may limit your foreign tax.  The tax treaty with each country specifically addresses the type of income for which the tax credit is available and the rate limitation.  For example, the tax treaty with the United Kingdom does not allow a tax credit for foreign taxes paid with respect to interest income.  Also, the tax treaty with India caps the foreign taxes paid to 15%.

But in all cases, if the foreign income is not recognized on your U.S. tax return, you cannot claim as a foreign tax credit the taxes paid to the foreign county on said income.

Given the complexity of this area, one would be best served by seeking tax counsel to make sure that you are getting the maximum tax benefits.  Contact the Law Offices Of Jeffrey B. Kahn, P.C. with locations in Los Angeles and elsewhere in California.

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.

Your CPA who prepared your tax return which has now been selected for audit, wants to represent you – why should you decline his offer and hire a tax attorney?

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We hear this question all the time.

CPA’s prepare tax returns and there are a lot of CPA’s and other tax professionals who are great in preparing tax returns.  A taxpayer will provide them with information and tax documents and a return will be generated for filing with the IRS.  This process I refer to as “compliance”.

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

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

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

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

The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles and California know exactly what to say and handle the IRS.  Our experience and expertise not only levels the playing field but also puts you in the driver’s seat as we take full control of resolving your tax problems.

Description: The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people avoid collection action by the IRS and State tax agencies. Working with a tax attorney in Los Angeles or elsewhere in California is the best bet for reducing or eliminating the amount you owe.

Is there an advantage to hire a former IRS agent over a tax attorney?

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It is surprising how many people think that just because someone worked for the IRS, they think that the former official has some kind of advantage in private practice.

What I find is that IRS agents are trained to deal with matters that are black and white.  However many times matters are gray and that’s where a tax attorney can plead a case to your benefit and get the best resolution possible.

Agents are also typically regulated to a single function in IRS – such as an auditor whose job is solely to conduct tax audits.  How can that agent then be able to help you get an Offer In Compromise?  A tax attorney is experienced in all these areas so no matter what your tax problem is, you will have effective representation and should get the best possible outcome.

Lastly, many IRS officials come and go and tax laws and procedures constantly change.  As a Board Certified Tax Attorney in public practice, I keep up with all the new tax laws and procedures and have developed a large network of IRS officials in all areas that I can reach out to as needed for the benefit of my clients.

The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles and California know exactly what to say and handle the IRS.  Our experience and expertise not only levels the playing field but also puts you in the driver’s seat as we take full control of resolving your tax problems.

Description: The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people avoid collection action by the IRS and State tax agencies. Working with a tax attorney in Los Angeles or elsewhere in California is the best bet for reducing or eliminating the amount you owe.

Should you follow the instructions of an IRS Revenue Officer assigned to your case who says you do not need representation?

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Unfortunately, this is a trap that so many taxpayers full into.

Revenue Officers are by definition “Collection Officers” for the IRS. Revenue Officers are assigned to accounts to collect back taxes. The Revenue Officer is working for the government’s best interest to collect the taxes that are owed as quickly as possible and to have the account paid in full.  That being the case – who is protecting your interest?

Revenue Officers have the authority to initiate IRS wage garnishment. A Revenue Officer can also enact an IRS levy of bank accounts, file federal tax liens, and even seize assets.

I have heard in many cases where taxpayers would say to me, I have no problem dealing with the Revenue Officer myself because he or she is so friendly and sweet to me and even seems to care about my situation.  But then a month or so later the same taxpayer will come back to me in tears that the same Revenue Officer has levied their bank account or garnished their wages.  That’s when they say I should have listened to you and let your firm deal directly with the IRS.

By retaining a tax lawyer from the Law Offices of Jeffrey B. Kahn, P.C. with locations in Los Angeles and other parts of California, a taxpayer gains the service and expertise of tax professionals who deal directly with Revenue Officers. Once our law firm is retained and is on record as the Power of Attorney, the assigned Revenue Officer must deal directly with our office, instead of with the taxpayer. Our objective, when dealing with a Revenue Officer, is to identify the appropriate means of resolving the taxpayer’s account given all facts, circumstances and law and to prevent the IRS from taking any inappropriate collection activity.

Description: The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people avoid collection action by the IRS and State tax agencies. Working with a tax attorney in Los Angeles or elsewhere in California is the best bet for reducing or eliminating the amount you owe.

Taxpayer Reporting Requirements for Foreign Real Estate

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

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

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

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

U.S. taxpayers who own income-generating real estate in a foreign country would benefit from the experienced tax attorneys of the Law Office Of Jeffrey B. Kahn, P.C. representing you to avoid the pitfalls associated with failure to comply with the reporting requirements associated with owing foreign real estate.

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

Should your really believe those companies that advertise that they can settle your IRS debt for pennies on the dollar?

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Through my years in this profession, that is a commonly asked or thought-about question.

We call these companies “Offer Mills”.  These companies which have no track record or history come in and out rather quickly and are never associated with any individual willing to put his or her name to the company and what the company is supposed to be doing.  This is because these companies tend to make misleading statements and guarantees that they cannot meet.

Many times these companies will not even evaluate your full financial situation at all and tell you what you want to hear just so that can make a profit from you.  Also with these companies you do not know who you are dealing with or where they are at. Which is why after many consumers complain about a particular one of these companies (and post their complaints on the internet), that company will close down and open up another a new name just to make a fresh start but only to follow the same bad path.

The Law Offices Of Jeffrey B. Kahn, P.C. is a law firm specializing in resolving tax problems.  When we say that you are a great candidate for an Offer In Compromise, it is because we have done a thorough evaluation of your case first.  Call our office to make an appointment to meet with our principal tax attorney, Jeffrey B. Kahn, in any of our Los Angeles offices or elsewhere in California who is board certified in tax and fully evaluates your case to determine the best viable option to resolve your tax problems.

Description: The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people avoid collection action by the IRS and State tax agencies. Working with a tax attorney in Los Angeles or elsewhere in California is the best bet for reducing or eliminating the amount you owe.

If you have tax problems, why should you hire a tax attorney instead of calling IRS on your own?

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Through my years in this profession, that is one of the most commonly asked or thought about questions.

Usually a taxpayer’s attention to his or her tax problems stems from a notice generated by some department of the IRS (which may look extremely intimidating) demanding that the taxpayer immediately contact either the Revenue Officer or Collection Agent regarding back taxes or some other tax issue.

The taxpayer’s response is usually rash to contact the IRS on their own without even thinking about representation at that time.  This decision by the taxpayer can be detrimental to the issue at hand.

This is because the taxpayer does not realize that the Revenue Officer or Collection Agent has one goal in mind and that is to collect as much information from you to make their job easier.  And what is their job? – to take some sort of aggressive collection action against the taxpayer or to get the taxpayer to commit to a payment plan that is unrealistic to maintain.  When the taxpayer cannot make a payment, the plan may lead into default and the IRS will then look at other avenues of collecting from you – liens, levies and asset seizures.

I have heard in many cases where taxpayers would say to me, I have no problem dealing with the Revenue Officer myself because he or she is so friendly and sweet to me and even seems to care about my situation.  But then a month or so later the same taxpayer will come back to me in tears that the same Revenue Officer has levied their bank account or garnished their wages.  That’s when they say I should have listened to you and let your firm deal directly with the IRS.

The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles and California know exactly what to say and handle the IRS.  Our experience and expertise not only levels the playing field but also puts you in the driver’s seat as we take full control of resolving your tax problems.

Description: The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people avoid collection action by the IRS and State tax agencies. Working with a tax attorney in Los Angeles or elsewhere in California is the best bet for reducing or eliminating the amount you owe.

KahnTaxLaw on Mr. Credit Thursday, January 30, 2014

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CA tax attorney Jeffrey B. Kahn discusses various IRS and Tax topics on Mr. Credit radio talk show.

Topics Covered:

1. National Football Association is recognized by the IRS as a tax-exempt entity.

2. Why should I hire you when I can call IRS on my own?

3. I hear all the time how firms can settle for pennies on the dollar – is that really true?

4. Offer In Compromise.

5. Installment Agreement.

6. Uncollectible Status.

7. Is there an advantage to hire a former IRS agent over a tax attorney?

8. My CPA who prepared my tax return which has now been selected for audit, wants to represent me – why should I decline his offer and hire a tax attorney?

 

Listen to the podcast: