Americans with Israeli Bank Accounts- Under Heightened Scrutiny in 2014

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Americans with Israeli bank or other financial accounts could face a tough tax season in 2014 if they do not come forward and disclose their assets to the IRS.  Recently, Israeli banks have come under increased scrutiny by the IRS in regards to disclosing the accounts of their American clients.  In particular, three Israeli banks- Bank Hapoalim, Bank Leumi and Mizrahi Tefahot- are under investigation by the Department of Justice.  To avoid prosecution, many other Israeli banks will begin turning over information as early as July 2014.

The prompt release of U.S. accountholder information by Israeli banks is a result of the IRS’s efforts to fully implement the 2010 Foreign Account Tax Compliance Act (“FATCA”) which requires foreign banks and financial institutions to report the assets of their American account holders.  FATCA was passed as part of the U.S. government’s effort to crack down on U.S. tax evaders.  Initially, the IRS concentrated its efforts on Swiss Banks.  However, in the past year, the IRS has been expanding its reach to other countries, particularly Israel.

As a result of this crackdown, some Israeli banks have been urging their American account holders to come forward and disclose their assets under the Offshore Voluntary Disclosure Initiative (OVDI).  In December 2013, Bank Leumi, the largest commercial Bank in Israel, sent out a letter to their American clients to come forward under the program.

U.S. taxpayers with account holdings should seriously consider coming forward and disclosing their assets to the IRS.  If you have never reported your foreign investments on your U.S. Tax Returns, the IRS has established the Offshore Voluntary Disclosure Initiative (OVDI) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS.

Despite the recent scrutiny by IRS on the Israeli bank, the attorneys with Law Offices Of Jeffrey B. Kahn, P.C. are still qualifying taxpayers with Israeli bank accounts for OVDI. With our expertise in Offshore Account Voluntary Disclosures, taxpayers 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.

Report of Foreign Bank and Financial Accounts (FBAR) Filing Limits

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In addition to annual income tax forms, certain taxpayers are required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”; previously called Form TD F 90-22.1).  All U.S. taxpayers who have an interest in, or signatory or other authority over a bank, securities or other similar foreign accounts must file an FBAR, if the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year.  The $10,000 threshold value applies whether the taxpayer holds the financial accounts separately or jointly with another person or persons.

As of October 1, 2013 the FBAR form must be filed through the Financial Crimes Enforcement Network’s (FinCEN’s) Bank Secrecy Act E-Filing System on or before June 30th of the year following the calendar year being reported.  For example, to report foreign accounts held open in 2013, the taxpayer must file the FBAR by June 30, 2014.

U.S. taxpayers who have foreign financial accounts 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 financial accounts.

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.

“Quiet Disclosure” of Foreign Accounts- Not So Quiet As It Seems

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There are strong indications that going forward, the IRS will be cracking down more stringently on the practice of “quiet disclosures”.  Under a quiet disclosure, a taxpayer through normal IRS filing channels files new or amends past tax returns and FBAR’s to report previously unreported offshore accounts and foreign income in an attempt to avoid potential civil penalties and fines.

The danger in doing this, however, is that if the IRS discovers a quiet disclosure, the taxpayer will be exposed to higher civil penalties than he would have if he voluntarily came forward under the Offshore Voluntary Disclosure Initiative (OVDI).  The taxpayer might even be exposed to criminal prosecution.

The IRS has clearly indicated its disdain for those who make quiet disclosures instead of participating in OVDI and to discourage taxpayers from pursuing this route, the IRS has implemented procedures at the Service Centers to intercept those filings reporting foreign income for further review and investigation by the IRS.  Where a taxpayer has been discovered by IRS in this process, that taxpayer who made the quiet disclosure will not be eligible for the 27.5% offshore penalty.  Instead a larger penalty of 50% would apply.  Also, if appropriate, the IRS may recommend criminal prosecution to the Department of Justice.  The IRS does encourage those who have already quietly disclosed to come forward under the OVDI to avail themselves of the lower penalty rates and avoid potential harsher consequences.

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.

Considerations in Opting Out of the OVDI

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IRS has established programs for taxpayers to voluntarily come forward and disclose unreported foreign income and foreign accounts under what the IRS calls the Offshore Voluntary Disclosure Initiative (OVDI).

On January 9, 2012 the IRS announced the terms of the 2012 OVDI which requires that taxpayers: (1) File 8 years of back tax returns reflecting unreported foreign source income; (2) Calculate interest each year on unpaid tax; (3) Apply a 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651; and (4) Apply up to a 27.5% penalty based upon the highest balance of the account in the past eight years.

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).

With taxpayers still facing a rather large penalty, taxpayers are torn on whether or not they should participate in OVDI or “Opt-Out”.

OVDI may not be perfect, but it is a finite way of getting beyond the fear of discovery and prosecution. Before our firm would engage in any discussion of opting-out with a client, we would first make sure that the Revenue Agent assigned to evaluate our client’s Civil Package has considered all of our arguments and positions to assure the lowest possible penalty or a taxpayer’s qualification for a lower OVDI penalty rate (such as 5% for inherited accounts).

When we know that we have done every possible within the confines of OVDI and the Revenue Agent has issued his or her final report, we would discuss then with our client the option of opting-out of OVDI.  There is much talk of opting-out but sparse data so far. The opt-out election is irrevocable and is typically made after the IRS has calculated a proposed miscellaneous offshore penalty. Keep in mind that from the time of registration into OVDI has occurred, at least a year has since past so if you have not yet registered into OVDI – registering for OVDI now still leaves much time before considering to opt-out.

From our experience, each person’s case must be looked at separately to determine if opting-out is the best option.  If you have no evidence of willfulness, the sheer numbers may make opting out attractive especially where the proposed OVDI penalty is in the hundreds of thousands of dollars.  But for those taxpayers whose proposed OVDI penalty is let’s say $80,000 or less, opting out probably can’t save you too much, especially if by opting out you end up with non-willful penalties which over a six-year period can equate to about the same amount as this $80,000 guideline amount referred herein.

From a broad perspective OVDI is predictable but opting out is much less so. As the above considerations reflect, think about your facts. Ask whether the potential risks and additional legal fees of opting out offset the potential rewards. Individual advice about the particular facts are important.

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 foreign account filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

 

Swiss Banks Rush to Meet U.S. Disclosure Deadline – Urge Their American Account Holders to Come Forward with Disclosure to the IRS

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The Swiss government has been urging about 300 Swiss banks to come forward and disclose their American account holdings to the U.S.   The deadline set by the U.S. Department of Justice (“DOJ”) for the Swiss banks to participate in a voluntary program whereby they disclose assets of their American clients was December 31, 2013.  By disclosing the assets and paying fines, the banks would be avoiding criminal prosecution.

In recent years, the U.S. has been cracking down on American tax evaders and the banks that help them.  In 2009, Swiss banking giant UBS admitted they were aiding tax evaders and paid out $780 million in a settlement with the U.S.  Another bank, Wegelin & Co., folded because of pressures from the DOJ investigation.

In turn, the Swiss banks have been pressuring their U.S. clients to come forward and disclose their assets to the IRS.  In December 2013, Swiss banks sent out letters to their American clients urging them to fess up.  The hope is that if more account holders come forward, the banks will pay less in fines and penalties.

Over 80% of Swiss Banks surveyed had stated that they have implemented the steps to participate in the DOJ Disclosure Program and that they are sending information on U.S accountholders to the DOJ.

If you have never reported your foreign investments on your U.S. Tax Returns, the IRS has established the Offshore Voluntary Disclosure Initiative (OVDI) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS.  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.

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.

U.S. Taxpayer Worldwide Income Reporting Requirements

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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.

When a U.S. taxpayer owns or has signatory authority over a foreign account, the reporting requirements become more complex.   All U.S. taxpayers who have an interest in, or signatory or other authority over a bank, securities or other similar foreign accounts must file 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.  As of October 1, 2013 the FBAR form must be filed through the Financial Crimes Enforcement Network’s (FinCEN’s) Bank Secrecy Act E-Filing System on or before June 30th of the year following the calendar year being reported.  For example, to report foreign accounts held open in 2013, the taxpayer must file the FBAR by June 30, 2014.

In addition to filing an FBAR form, the U.S. taxpayer must follow certain reporting requirements on his or her annual tax return.  First, the U.S. taxpayer must include a completed Schedule B, Interest and Ordinary Dividends, with his or her annual tax return.  On Schedule B, the taxpayer will complete Part III, Foreign Accounts and Trusts, which asks whether, at any time in the year, the taxpayer had a financial interest in or signatory authority over a foreign financial account.  Schedule B also asks whether the taxpayer is required to file an FBAR, and if so, in which foreign country the financial account was located.

The U.S. Taxpayer may also be required to file Form 8938, Statement of Specific Foreign Financial Assets with his or her annual tax return.  Whether a taxpayer is required to file this form depends on where the taxpayer lives, the taxpayer’s filing status, and the value in the accounts.  For example, unmarried taxpayers living in the United States must file Form 8938 if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

Failure to comply with the above reporting requirements can result in steep penalties to the unwitting taxpayer.  Failure to file an FBAR may result in civil penalties for negligence, pattern of negligence, non-willful, and willful violations.  These penalties range from a high penalty for willful violations, equal to the greater of $100,000 or 50% of the balance in the account at the time of violation, to a low penalty of $500 for negligent violations.  For failing to file a correct Schedule B and Form 8938, the taxpayer could face a failure-to-file penalty of $10,000, criminal penalties, and if the failure to file results in underpayment of tax, an accuracy-related penalty equal to 40% of the underpayment of tax and a fraud penalty equal to 75% of the underpayment of tax.

U.S. taxpayers who have foreign financial accounts 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 financial accounts.

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.

 

Eliminating Tax Penalties Due to Reasonable Cause

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If you have made a mistake on your tax return that is later discovered by the IRS, you will be charged interest on the amount you owe. In addition, the IRS has the discretion to assess penalties requiring you to pay extra. But this doesn’t mean that you will have to pay these penalties. Working with a tax lawyer in Los Angeles or elsewhere can help in getting the penalties reduced or even dropped.

About one-third of all IRS penalties are abated and your odds of having your penalties dropped are much higher if you work with a tax attorney on your case. In order to convince the IRS to remove the penalties they have imposed, you need to convince them of special circumstances that lead to “reasonable cause” for you to not have made a correct filing initially.

This goes beyond just admitting that you made an honest mistake. Here are a few of the scenarios that the Law Offices Of Jeffrey B. Kahn, P.C.  know that the IRS will consider to be reasonable cause for an erroneous tax filing:

  • A death or serious illness in the family.
  • Incorrect advice given by an IRS agent in person or over the phone.
  • The loss of records because of a fire or natural disaster.
  • An error made by your tax preparer.

If you feel that you are being unfairly punished for a problem with a tax filing that was beyond your control, your best bet is to contact an IRS attorney from our firm who can review the facts in your case.

An experienced attorney with the Law Offices Of Jeffrey B. Kahn, P.C. may be able to help you get your tax penalties reduced or eliminated. Learn about the circumstances a tax attorney can use to plead your case with the IRS.

The Essential Records to Have for a Tax Audit

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If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

The Law Offices Of Jeffrey B. Kahn, P.C.  has seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Fairfield or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your attorney in advance of the audit, your attorney can review your documentation and determine if there are any gaps that need to be addressed. This will allow you to have in in-depth conversation with your IRS audit attorney.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

  • Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
  • Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
  • Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
  • Written letters from charities confirming your monetary donations from the previous year.
  • Receipts for business expenses you claimed.

The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people minimize or avoid adjustments from IRS audits. Working with a tax attorney is the best bet for minimizing adjustments that would create liability to the IRS.

The Importance of Avoiding Tax Liens

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If you have recently received notice that there is a tax lien against your home, you need to quickly contact a tax lawyer for IRS tax help. Receiving official notice from the IRS about a tax lien against your home means that the government has placed a legal claim against your home as a form of leverage to attempt to secure its interest in your assets to satisfy past tax debts. While this doesn’t mean that the IRS is going to take over your home and evict you, it does have some potentially negative consequences.

With the current housing market, tax attorneys in California often have to deal with helping homeowners get a tax lien removed so they can sell or refinance their home. The easiest resolution of this problem is where the proceeds of the sale or refinancing can fully satisfy the lien at closing.  If this isn’t possible for financial reasons, an experienced tax attorney at the Law Offices Of Jeffrey B. Kahn, P.C. can request the IRS to release or subordinate the lien to allow the transaction to proceed if it can be shown that the IRS would be in no worse position by allowing the sale or refinancing to go through.

Once a tax lien is filed, it will stay on your credit history for seven years.  However, the Law Offices Of Jeffrey B. Kahn, P.C. can help you negotiate a resolution through the IRS Fresh Start Program which offers a one-time way to get this mark removed from your credit.

If you are in danger of having a tax lien placed against your property, it’s urgent that you speak with an income tax attorney. The experienced tax attorneys in the Law Offices Of Jeffrey B. Kahn, P.C. know how to keep this from happening.

Time Limits on IRS Collection Efforts

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Once you have an assessment our outstanding balance with IRS, the IRS is notorious for aggressively pursuing collection action by issuing levies on your bank accounts and sources of income.  Their efforts though cannot last forever. It’s a little-known fact that the IRS has a Statute Of Limitations on collecting amounts owed to IRS. If you have owed money to the IRS for some time, you might be able to work with a tax attorney to get at least some of your IRS debt erased where the Statute Of Limitations is soon to expire.

Generally, the IRS has 10 years from the date the taxes were assessed to collect any past taxes. If you don’t file a return, the IRS will make a deficiency assessment based on a substitute return they file for you, so don’t expect that not filing a tax return will prevent the 10-year period to start.

Beware that States will have their own Statute Of Limitations for the collection of State taxes.  In California the Statute Of Limitations is 20 years.  If you owe IRS and the State, you can work with tax lawyer in Los Angeles  and use the different Statute Of Limitations to your advantage. A consultation with the Law Offices Of Jeffrey B. Kahn, P.C. can help you determine what the best strategy is for you.

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 is the best bet for reducing or eliminating the amount you owe.