Archive for category: Foreign Accounts – IRS Operations & Investigation Developments

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. The U.S. has entered into intergovernmental Agreements (“IGA’s”) with 26 countries for the implementation of FATCA.

Australia’s Treasurer Joe Hockey announced on April 29, 2014 that Australia and the United States “…signed an intergovernmental agreement (IGA) to reduce the burden on Australian financial institutions in complying with FATCA.” This makes Australia he 27^th country to join the ranks of those countries cooperating with the U.S. in disclosing U.S. accountholders to the IRS.

Mr. Hockley commented that the agreement would assist Australian financial institutions to comply with FATCA and minimize the costs of doing so. He also mentioned that “…it broadens arrangements between the Australian Taxation Office and the U.S. Internal Revenue Service” and that it “…will also improve existing tax information-sharing arrangements between Australia and the United States, for the purpose of presenting tax evasion.”

The 26 countries with IGA’s already in place are:

Bermuda	France	Italy	Netherlands
Canada	Germany	Japan	Norway
Cayman Islands	Guernsey	Jersey	Spain
Chile	Hungary	Luxembourg	Switzerland
Costa Rica	Honduras	Malta	United Kingdom
Denmark	Ireland	Mauritius
Finland	Isle of Man	Mexico

 

Countries which are close to having an IGA in place are:

 

Austria	Estonia	Liechtenstein	Qatar
Belgium	Gibraltar	Lithuania	Slovenia
Brazil	Jamaica	New Zealand	South Africa
British Virgin Islands	Kosovo	Poland	South Korea
Croatia	Latvia	Portugal	Romania
Czech Republic

 

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.

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 2012 Offshore Voluntary Disclosure Initiative (OVDI). 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 and elsewhere in California qualify you for OVDI.

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.

If you have undisclosed foreign accounts you have an important decision to make. That decision being – when do you start disclosing your foreign bank accounts and foreign income and how should you disclose?

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

But with recent changes in the tax law, mandatory reporting of U.S. account holders by foreign banks and the IRS’ placement of dedicated resources and systems to detect non-compliant taxpayers, it is not a question of “if you get caught” but “when you will get caught”.

Here are the nine things that would accelerate your chance of being caught by IRS:

1. Starting to report foreign income on your 2013 income tax return and disregarding the fact that you did not disclose this in previous years. The IRS computers already are programmed to compare information on prior returns to your current return to look for unusual swings in activity and income.

2. Starting to report your foreign accounts on an FBAR in 2013 and disregarding the fact that you did not disclose this in previous years. The IRS computers already are programmed to compare information on prior returns to your current return to look for unusual swings in foreign accounts and can do this more quickly and effectively as information is required to be filed electronically.

3. Filing delinquent FBAR’s with or without statement as to why they are filed late. It is always a red flag to the IRS when a taxpayer files delinquent FBAR’s which in order to be processed will need to be reviewed by an IRS agent.

4. Filing amended income tax returns identifying that you have foreign accounts and reporting foreign income. Another red flag to the IRS when a taxpayer files delinquent returns which in order to be processed will need to be reviewed by an IRS agent.

5. Supplying your foreign bank with your identifying information so that the bank can report you to IRS. And just like your employer or another payor, your information at the foreign bank will be reported to IRS.

6. Ignoring requests from your foreign bank for your identifying information. Even where the bank does not receive any information from you, the bank will still report what information it has to IRS which the bank is still required to do. In addition, the foreign bank will freeze your account until you provide the bank with your identifying information.

7. Transferring funds from the U.S. to your foreign account or from the foreign account to the U.S. These transfers are independently reported through the banking channels and will make their way to IRS.

8. Paying your credit cards and other bills from an account associated with a foreign bank. These transactions are independently reported through the banking channels and will make their way to IRS.

9. Closing your foreign account and withdrawing the funds or transferring the funds to another bank (whether to the U.S. or another foreign bank). Even where an account was closed, the bank will still report what information it has to IRS which the bank is still required to do. We have clients whose foreign account was closed at least three years ago and they are still being reported to IRS.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). 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 and elsewhere in California qualify you for OVDI.

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.

In an effort to combat taxpayers who are not reporting income earned on foreign assets, the IRS has implemented a new Form 8938, Statement of Specified Foreign Financial Assets, that beginning with the 2011 tax year must be included with a taxpayer’s Form 1040 if the taxpayer holds specified foreign financial assets with an aggregate value exceeding $50,000.  Prior to 2011, taxpayers had to disclose foreign financial accounts with an aggregate value exceeding $10,000 in a separate filing with the U.S. Treasury using exclusively a form called the Foreign Bank Account Report (“FBAR”).  The FBAR filing requirement still applies even though a taxpayer is now required to include Form 8938 with his or her Form 1040.

The authority for this new form comes from Section 511 of the Hiring Incentives to Restore Employment (HIRE) Act, P.L. 111-147, adding new Sec. 6038D, which states that a specified person who holds an interest in specified foreign financial assets must attach Form 8938 to that person’s income tax return, provided the aggregate value of the person’s foreign financial assets exceeds $50,000. While the minimum threshold for filing a Form 8938 is $50,000.00 in foreign assets, higher asset thresholds apply to U.S. taxpayers who file a joint tax return or who reside abroad. 

The penalty for failure to file Form 8938 is $10,000. If a taxpayer does not file Form 8938 within 90 days of the IRS’s mailing a notice of failure to file the form, an additional penalty of $10,000 is imposed for each 30-day period or part of a 30-day period after the initial 90-day period the failure to file continues, up to a maximum amount of $50,000. In addition to a penalty for failing to file Form 8938, an accuracy-related penalty may be imposed. Taxpayers are subject to a penalty equal to 40% of the underpayment of tax if the underpayment results from a transaction that involved undisclosed specified foreign financial assets. Lastly, taxpayers must pay a penalty of 75% of the underpayment if the underpayment is due to fraud.

You must file Form 8938 if:

1.         You are a specified individual. 

A specified individual is:

• A U.S. citizen
• A resident alien of the United States for any part of the tax year
• A nonresident alien who makes an election to be treated as resident alien for purposes of filing a joint income tax return
• A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico
  

AND

2.         You have an interest in specified foreign financial assets required to be reported. 

A specified foreign financial asset is:

• Any financial account maintained by a foreign financial institution
• Other foreign financial assets held for investment that are not in an account maintained by a US or foreign financial institution, namely: stock or securities issued by someone other than a U.S. person
• Any interest in a foreign entity, and
• Any financial instrument or contract that has as an issuer or counterparty that is other than a U.S. person.
  

AND

3.         If you live in the U.S. and the aggregate value of your specified foreign financial assets is more than the reporting thresholds that applies to you:

• Unmarried taxpayers living in the US: 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
• Married taxpayers filing a joint income tax return and living in the US: The total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year
• Married taxpayers filing separate income tax returns and living in the US: 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.
  

OR

If you live abroad and the aggregate value of your specified foreign financial assets is more than the reporting thresholds that applies to you:

• You are filing a return other than a joint return and the total value of your specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or
• You are filing a joint return and the value of your specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

The IRS deems a taxpayer to be living abroad where:

a.         You are a U.S. citizen whose tax home is in a foreign country and you are either a bona fide resident of a foreign country or countries for an uninterrupted period that includes the entire tax year, or

b.         You are a US citizen or resident, who during a period of 12 consecutive months ending in the tax year is physically present in a foreign country or countries at least 330 days.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI).  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.  If you are not in OVDI, civil Penalties start at 50% of the value of the foreign assets and you could be subject to criminal charges. 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 San Francisco, Los Angeles and elsewhere in California qualify you for OVDI.

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 Justice Department is conducting a criminal investigation of HSBC Holdings Plc clients who may have failed to disclose accounts in India or Singapore to the IRS.  Already some U.S. taxpayers have received a letter from the Justice Department that said prosecutors had “reason to believe that you had an interest in a financial account in India that was not reported to the IRS on either a tax return or a Treasury Department report disclosing foreign accounts”.  The letter goes on to state “You are advised that you are a subject of a criminal investigation being conducted by the Tax Division. Destroying or altering documents relating to the probe constitutes a serious violation of federal law, including but not limited to obstruction of justice”.

The letters went to U.S. residents who have ties to India, including people who inherited money from relatives or maintained assets there after leaving the country. Some letters referred to undisclosed bank accounts in Singapore.

This probe shows how the U.S. is expanding its crackdown on offshore tax evasion beyond Switzerland its largest bank, UBS. London-based HSBC is Europe’s biggest lender by market value and appears to be IRS’ next big target.  For the IRS to be sending letters to U.S. taxpayers means that prosecutors got data on HSBC account holders from the bank.

UBS avoided prosecution by admitting it aided tax evasion from 2000 to 2007, paying $780 million, and agreeing to disclose secret account data on more than 250 clients. It later agreed to disclose data on another 4,450 clients.  Officials at HSBC are likely cooperating with IRS in releasing data in an effort to avoid the same magnitude of fines that UBS had to pay.

The IRS is placing more than 800 people to analyze data from foreign banks and compare it to what was reported on U.S. taxpayers’ tax returns.  The IRS is also increasing staff in eight overseas offices, including Hong Kong and the IRS is opening offices in Beijing, Sydney and Panama City.

The IRS boasts that they just took down the largest private wealth management bank in the world (UBS).  Do you really think they are going to have trouble doing the next one?  The Asian banks recognize this and do not want to have a UBS-type situation. They want to do it nice and quiet. They don’t want to be the focus of attention. The Department of Justice and IRS are devoting a ton of resources to this issue.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI).  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.

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.