Stopping offshore tax cheating and bringing individuals, especially high net-worth individuals, back into the tax system has been a top priority of the IRS for several years and the IRS established offshore voluntary disclosure programs to encourage taxpayers with undisclosed offshore assets to become current with their tax liabilities. The programs have been part of a wider effort to stop offshore tax evasion, which includes enhanced enforcement, criminal prosecutions and implementation of third-party reporting via the Foreign Account Tax Compliance Act (“FATCA”).

2012 Offshore Voluntary Disclosure Initiative (OVDI)

After the two prior voluntary programs, continued strong interest by taxpayers and tax professionals led to a third program. In January 2012, the IRS revised the terms of the previous 2011 OVDI program and made it permanent until further notice.

Under the 2012 Offshore Voluntary Disclosure Program, participants pay a penalty of up to 27.5% of the highest aggregate balance or value of offshore assets during the prior eight years and do not have to worry of even higher penalties and criminal prosecution.

Changes to Offshore Programs Announced By IRS on June 18, 2014

On June 18, 2014, the IRS announced major changes in the 2012 OVDI program providing new options to help taxpayers residing in the United States and overseas.

First, the IRS expanded the streamlined procedures to cover a much broader group of U.S. taxpayers who have failed to disclose their foreign accounts but who aren’t willfully evading their tax obligations..

Second, the IRS has reshaped the terms for taxpayers to participate in the Offshore Voluntary Disclosure Program (“OVDP”). OVDP is designed to cover those taxpayers whose failure to comply with reporting requirements is considered willful in nature, and who therefore don’t qualify for the streamlined procedures. The changes will help focus this program on people seeking certainty and relief from criminal prosecution

Taxpayers with undisclosed foreign account now have up to four options listed below:

1. Offshore Voluntary Disclosure Program;

2. Streamlined Filing Compliance Procedures;

3. Delinquent FBAR submission procedures; and

4. Delinquent international information return submission 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.

On June 18, 2014, IRS Commissioner John Koskinen announced big changes in the IRS offshore account compliance program or more commonly known as OVDP or the Offshore Voluntary Disclosure Program.

Because some taxpayers may have been holding back from entering into the OVDP, the IRS has changed its rules to make it more palatable for taxpayers to come forward and become compliant. In the Commissioner’s words “Our aim is to get people to disclose their accounts, pay the tax they owe and get right with the government”. However, the Commissioner stressed that anyone who continues to willfully and aggressively evade U.S. tax laws by hiding money overseas that they will pay a higher price for that noncompliance. Even with the changes in OVDP, it is still a better deal than the alternative, because if the IRS finds you, you can face higher penalties and, as the record shows, could face criminal prosecution and jail time.

The IRS is continuing its efforts to track down people still out there who are hiding assets overseas. More information on these accounts is coming in to IRS every day. For example, Swiss banks are cooperating through a program put in place last year by the Department of Justice. Just recently the Department Of Justice reached an historic agreement with Credit Suisse. Also, more banks around the world will be coming forward with information on their U.S. customers beginning July 1, 2014. That’s when reporting requirements under the Foreign Account Tax Compliance Act (“FATCA”), go into effect.

It is clear that the days of hiding assets in accounts overseas are coming to an end. There is no reason not to come into compliance.

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 OVDP of 50% – nearly double the regular 27.5%. This increase could start as early as August 4, 2014.

For anyone who wants to come into compliance but isn’t sure what to do, 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.

The Federal government is stepping up the pressure on taxpayers to report their offshore assets as a deadline to report foreign bank accounts draws near. Taxpayers need to be sharply aware of their responsibility to file the Form FinCEN 114 (formerly known as Form TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”), as the June 30 due date draws near. There are no extensions and no exceptions. The passing of the FBAR deadline will certainly create more headaches for taxpayers with undeclared foreign assets.

The FBAR is just one facet of the IRS’ continued pursuit of information on accounts and assets held in other countries. In an age of increased criminal enforcement, the emphasis on the FBAR, and the Foreign Account Tax Compliance Act (“FATCA”), it is more important than ever for taxpayers to come into compliance.

U.S. citizens living abroad, dual citizens, and those living in the United States all need to understand their responsibilities and already many taxpayers have come into compliance by entering into a program called the Offshore Voluntary Disclosure Initiative (“OVDI”) whereby taxpayers can avoid criminal prospection and the penalties are reduced. Nevertheless, there are still a lot of people in the U.S. who have never heard of it but with the better level of publicity that has been put out there and the upcoming June 30^th deadline, this has captured the attention of many more taxpayers and practitioners in recent weeks.

For a large number of people who are unaware of this problem, the prevailing view seems to be that because the taxpayer is paying taxes where the account is located and therefore it’s not taxable here in the United States. But even with the income being reported in the foreign country and the foreign taxes paid it doesn’t change the fact that it needs to be reported in the U.S.

In addition to those who simply do not know, there is a whole group of people who have become aware of the requirement and are paralyzed with fear that the IRS will come after them for back years. They are plain scared and are continuing to let things lapse which only makes matters worse as the penalties continue to mount year-by-year.

Failure to File

While the FBAR is an information return that imposes no tax, significant civil and criminal penalties may be asserted for failure to file. The civil penalty for willful failure to file an FBAR equals the greater of $100,000 or 50% of the total balance of the foreign account per violation.  The government may also pursue criminal prosecution which can result in up to five years of jail time. Non-willful violations that are not due to reasonable cause incur a penalty of $10,000 per violation.

4^th Circuit Court Established Low Standard For Proving Willfulness

The 4^th Circuit ruled that a taxpayer’s signature on his tax return was “prima facie evidence that he knew the contents of the return” and that the instructions in Schedule B, which refers to whether the taxpayer has any foreign accounts put U.S. taxpayers on “inquiry notice” of the FBAR filing requirement. It does not matter that the taxpayer never read his tax return or looked at the FBAR form. The Court went on to say that this was enough to demonstrate a “conscious effort to avoiding learning about reporting requirements… meant to conceal or mislead sources of income or other financial information… that constitutes willful blindness to the FBAR requirements”. U.S. v. J. Bryan Williams, No. 10-2230, July 20, 2012 (unpublished).

Offshore Voluntary Disclosure Initiative (“OVDI”)

This program was first created in 2009 as the Offshore Voluntary Disclosure Program (“OVDP”) but in 2011 was renamed to OVDI. Generally, the miscellaneous offshore penalty under the OVDI program (the “OVDI penalty”) equals 27.5% of the highest aggregate balance in the foreign assets or entities during the years covered by the OVDI program, but may be reduced in limited cases to 12.5% or 5%. Certain taxpayers may qualify for even greater savings through a reduction of the offshore penalty. 

Taxpayers participating in the ongoing 2012 OVDI generally agree to file amended returns and file FBARs for eight tax years, and in addition to paying pay the OVDI penalty (which is assessed in lieu of all other potentially applicable penalties associated with a foreign financial account or entity) taxpayers would pay the appropriate taxes and interest together with an accuracy related penalty equivalent to 20% of any income tax deficiency

Taxpayers whose highest aggregate foreign account balance is less than $75,000 for each of the years in the OVDI disclosure period may qualify for a reduced 12.5% OVDI penalty.

Taxpayers who fall into one of three specific categories may qualify for a reduced 5% OVDI penalty.  The first category includes taxpayers who inherited the undisclosed foreign accounts or assets.  Second, taxpayers who are foreign residents and who were unaware that they were U.S. citizens may qualify for a reduced 5% OVDI penalty.  Finally, U.S. taxpayers who are foreign residents may also qualify for the reduced 5% OVDI penalty in certain circumstances. 

On June 18, 2014, the IRS renamed the program to the 2014 Offshore Voluntary Disclosure Program (“OVDP”).

New Rules Apply For Taxpayers Who Did Not Act Willfully In Failing To Report Foreign Accounts And Foreign Income

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.  

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 OVDP penalty.

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% OVDP 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

For taxpayers currently in the 2011 or 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.

June is a busy month for taxpayers and tax pros alike. Nestled amid due dates for estimated tax payments and deadlines for taxpayers who were out of the country on Tax Day is one of the most overlooked dates for taxpayers: June 30, 2014.

June 30, 2014 marks the due date for the Report Of Foreign Bank And Financial Accounts (“FBAR”).

The FBAR filing requirements are part of the Banking Secrecy Act. Under the Act, each “U.S. person” with an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in any foreign country must file an FBAR if the aggregate value of such accounts at any point in a calendar year exceeds $10,000. A “U.S. person” generally means a citizen or resident of the United States, or a person in and doing business in the United States – it is not limited to individual taxpayers and includes partnerships and corporations.

In other words, if the total of your interests in all of the foreign accounts in which you have an interest reaches $10,000 or more at any point in the calendar year, you may need to file an FBAR. That applies even if you’ve been faithfully reporting the income on your federal income tax return and even if you’ve never, ever repatriated a single dollar to the U.S. It also applies even if the account produces no taxable income.

There are some exceptions to the FBAR reporting requirements, such as:

• Certain foreign financial accounts jointly owned by spouses;

• United States persons included in a consolidated FBAR;

• Correspondent/nostro accounts;

• Foreign financial accounts owned by a governmental entity;

• Foreign financial accounts owned by an international financial institution;

• IRA owners and beneficiaries;

• Participants in and beneficiaries of tax-qualified retirement plans;

• Certain individuals with signature authority over but no financial interest in a foreign financial account;

• Trust beneficiaries; and

• Foreign financial accounts maintained on a United States military banking

Disclosure is made by e-filing FinCEN Form 114 (formerly Form TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”).  The FBAR has to be received on or before June 30th. No extension of time is available. Even if you filed an extension for your 2013 Federal individual income tax return – that extension does not apply to the FBAR.

Failure to File

While the FBAR is an information return that imposes no tax, significant civil and criminal penalties may be asserted for failure to file. The civil penalty for willful failure to file an FBAR equals the greater of $100,000 or 50% of the total balance of the foreign account per violation.  The government may also pursue criminal prosecution which can result in up to five years of jail time. Non-willful violations that are not due to reasonable cause incur a penalty of $10,000 per violation.

IRS Believes There Is a High Level Of Non-compliance

Despite the large penalties and the threat of criminal prosecution for avoiding the FBAR requirement, the 42-year-old reporting form has historically been largely unknown or unheeded by U.S. persons who are required to file it. The IRS has consistently said it believes that less than 20% of offshore accountholders subject to FBAR reporting actually submit the form in any given year.

Offshore Voluntary Disclosure Initiative (“OVDI”)

This program was first created in 2009 as the Offshore Voluntary Disclosure Program (“OVDP”) but in 2011 was renamed to OVDI. Generally, the miscellaneous offshore penalty under the OVDI program (the “OVDI penalty”) equals 27.5% of the highest aggregate balance in the foreign assets or entities during the years covered by the OVDI program, but may be reduced in limited cases to 12.5% or 5%. Certain taxpayers may qualify for even greater savings through a reduction of the offshore penalty. 

Taxpayers participating in the ongoing 2012 OVDI generally agree to file amended returns and file FBARs for eight tax years, and in addition to paying pay the OVDI penalty (which is assessed in lieu of all other potentially applicable penalties associated with a foreign financial account or entity) taxpayers would pay the appropriate taxes and interest together with an accuracy related penalty equivalent to 20% of any income tax deficiency

Taxpayers whose highest aggregate foreign account balance is less than $75,000 for each of the years in the OVDI disclosure period may qualify for a reduced 12.5% OVDI penalty.

Taxpayers who fall into one of three specific categories may qualify for a reduced 5% OVDI penalty.  The first category includes taxpayers who inherited the undisclosed foreign accounts or assets.  Second, taxpayers who are foreign residents and who were unaware that they were U.S. citizens may qualify for a reduced 5% OVDI penalty.  Finally, U.S. taxpayers who are foreign residents may also qualify for the reduced 5% OVDI penalty in certain circumstances. 

What Should You Do?

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, 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, San Diego 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.