Court Authorizes IRS to Issue Summonses for Records Relating to U.S. Taxpayers with Offshore Bank Accounts

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A number of U.S. taxpayers with beneficial ownership and control over funds held in accounts at Zurcher Kantonalbank and its affiliates (collectively, ZKB) in Switzerland, and The Bank of N.T. Butterfield & Son Limited and its affiliates (collectively, Butterfield) in the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland, and the United Kingdom, have admitted failing to report income earned from their offshore accounts on their federal tax returns.  The IRS has reason to believe that other U.S. taxpayers who held or presently hold similar accounts at ZKB, Butterfield, and their affiliates have done the same in violation of federal tax law.  In December 2012, three employees of ZKB were indicted for conspiring with U.S. taxpayers and others to hide at least $423 million from the IRS in secret Swiss bank accounts.

On November 7, 2013, U.S. District Judges in the Southern District of New York entered orders authorizing the IRS to issue summonses requiring Bank of New York Mellon (Mellon) and Citibank NA (Citibank) to produce information about U.S. taxpayers who may be evading or have evaded federal taxes by holding interests in undisclosed accounts at ZKB; and requiring Mellon, Citibank, JPMorgan Chase Bank NA (JPMorgan), HSBC Bank USA NA (HSBC), and Bank of America NA (Bank of America) to produce similar information in connection with undisclosed accounts at Butterfield.

In these actions, the Court granted the IRS permission to serve what are known as “John Doe” summonses on Mellon, Citibank, JPMorgan, HSBC, and Bank of America.  The IRS uses John Doe summonses to obtain information about possible tax fraud by individuals whose identities are unknown.  The John Doe summonses direct these five banks to produce records identifying U.S. taxpayers with accounts at ZKB, Butterfield and their affiliates, including other foreign banks that used ZKB and Butterfield’s U.S. correspondent accounts at Mellon, Citibank, JPMorgan, HSBC, and Bank of America to service U.S. clients.

The information that the banks are required to turn over to the IRS will provide information about individuals using financial institutions from Switzerland to the Cayman Islands to Hong Kong to avoid their U.S. tax obligations.  As the U.S. government is continuing its commitment to uncover and identify taxpayers who tried to hide money overseas as a way to avoid federal taxes, U.S. taxpayers still holding accounts who have not come clean should come forward and do the right thing before it is too late.

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.

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.

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.

HSBC Clients With Asian Accounts Said to Face U.S. Tax Probe

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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.

Tax Return Preparers Face IRS Scrutiny and Criminal Prosecution for Assisting in Income Tax Evasion By Not Disclosing Clients’ Foreign Income And Foreign Accounts.

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The U.S. tax laws require that U.S. taxpayers must report their worldwide income, regardless of whether they are living in the U.S. or abroad.  In addition 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.

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.

Failure to comply with the above reporting requirements can result in steep penalties to the unwitting taxpayer including civil and criminal charges.  When investigating tax evasion, however, the IRS does not limit its inquiries to those who are responsible for paying taxes.

U.S. tax law provides that any person who willfully aids or assists in, counsels, or advises the preparation of a tax return or other IRS document that is fraudulent or false as to any material matter can be charged with a crime. If convicted, this is a three year felony that carries a maximum three year prison sentence and a fine of up to $250,000. An individual does not need to sign the document in question to found guilty of this crime and this statute is often is used to catch tax preparers, accountants, or lawyers who help taxpayers cheat on their taxes. IRC §7206(2).

In June 2012, three managers (David Kalai, Nadav Kalai, and David Almog) of a tax return preparation service called, United Revenue Service (“URS”), were indicted before the United States District Court for the Central District of California.  The indictment alleged that the defendants prepared false individual income tax returns which did not disclose the clients’ foreign financial accounts nor report the income earned from those accounts. If convicted, each defendant faces a maximum of three years in prison for each count and a maximum fine of $250,000 for each count.

This indictment appears to be just the beginning of the Justice Department’s attempts in California to prosecute not only those who have undeclared foreign bank accounts and under- (or un-) reported income to the IRS, but those who have assisted the taxpayers with improperly reducing (or avoiding altogether) their income tax liability to the IRS.

If you are under investigation or have been charged with a crime related to false preparation or false presentation of tax returns or you have just learned from your client that foreign income and foreign bank accounts needed to be reported on tax returns, you should speak with an experienced criminal tax defense attorney at the Law Offices Of Jeffrey B. Kahn, P.C. who can help you determine the most effective course of action.

Description: Protect yourself from loosing your license and being charged with 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 defend you from the IRS.

IRS Announces New Initiative To Target Unreported Indian Accounts In Northern California

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Late last year at a California Bar conference, an IRS official stated that the IRS will start in 2014 a new Indian initiative targeted at individuals with undeclared Indian accounts.

Nicholas Connors, a supervisory revenue agent with the IRS small business/self employed division stated that the IRS will soon “begin examining US taxpayers suspected of holding undeclared accounts in Indian banks”.

The United States is the only country that requires citizens and residents (i.e. green card holders) to report their worldwide income, no matter where in the world they might live or how many other citizenships they might hold. Also, U.S. citizens and residents are required to file an FBAR with the U.S. Treasury disclosing any foreign financial account over $10,000 in which they have a financial interest, or over which they have signature or other authority. A willful failure to report a foreign account can result in an annual penalty of up to 50 percent of the amount in the account.

Connors stated that the IRS has received the first round of information on accounts from Indian banks. From this batch, there are at least 100 Indian bank account cases that the IRS is sending out for examination (also known as audit) across the country. “I think California, because of the large Indian population, is going to get more than its fair share of cases,” Connors said.

“Within the Northern California/Bay Area, the IRS Northern California/Bay Area office is scheduled to pick up 30 or 40 of those.” Connors further added that “Looking ahead, the offshore bank investigations are just going to grow” and “within the IRS audit division, there’s talk that this could someday become a work issue for every single revenue agent in the IRS where everyone will be working some type of offshore case.”

While much recent publicity has affirmed that the IRS has been targeting Swiss and Israeli banks, India also continues to be a focal point for the United States government. As a result, over the past 5 years, more than a dozen NRI’s have pled or have been found guilty of failure to report foreign income and accounts in U.S. criminal courts. Most recently, Ashvin Desai of San Jose, California was convicted in October 2013 of tax evasion. According to evidence presented at trial, Desai and his family maintained bank accounts worth more than $7 million with The Hong Kong and Shanghai Banking Corporation Ltd. (HSBC) in India. Desai prepared and filed income tax returns for his family members that failed to report the accounts or over $1.1 million in interest generated by them over three years.

Congress has also enacted the Foreign Account Tax Compliance Act, requiring foreign banks to disclose U.S. customer accounts every year or pay a 30% tax on their U.S. investment income.

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.

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.

Credit Suisse Helped Wealthy Americans Cheat The IRS

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A Senate Report just issued states that Swiss banking giant Credit ­Suisse helped wealthy Americans hide billions of dollars from U.S. tax collectors.

Credit Suisse chief executive Brady W. Dougan and Deputy Attorney General James M. Cole recently appeared at a Congressional subcommittee following the issuance of the 175-page report.  The report was issued after the culmination of a two-year investigation and alleges that from 2001 to 2008 Switzerland’s second-largest bank helped customers disguise Swiss accounts by opening them in the name of offshore shell entities. Bankers used cloak-and-dagger tactics to conceal their misdeeds, according to the report.

Lawmakers have accused the bank of helping wealthy Americans avoid paying taxes on as much as $12 billion in assets held at the institution.

One former customer told investigators that a Credit Suisse banker once handed him bank statements hidden in a Sports Illustrated magazine during a breakfast meeting at a Mandarin Oriental hotel.

About 1,800 Credit Suisse bankers were opening and servicing Swiss accounts for wealthy Americans by 2008. Some of those bankers helped American clients structure large cash transactions to avoid U.S. reporting requirements, in violation of U.S. law. The bank also used outside parties to supply clients with credit cards that enabled them to secretly draw upon the cash in their Swiss accounts, according to the report.

The U.S. Department Of Justice has charged 73 U.S. account holders and 35 bankers and advisers with offshore tax evasion offenses since 2009. The U.S. government has acknowledged that as many as 14 Swiss financial institutions are currently under investigation, and won’t hesitate to indict if and when circumstances merit.

Switzerland’s largest bank, UBS, turned over 4,700 accounts of U.S persons in 2009. So far 238 names of Credit Suisse U.S. customers have been turned over to the U.S. through treaty requests.  More names are forthcoming given the U.S. government’s use of civil summonses and a grand jury subpoenas to get information and the Swiss government’s cooperation to now facilitate this release of this information.

The situation at Credit Suisse changed in 2008 when UBS came clean about its role in aiding U.S. tax evasion, which led the bank to disclose thousands of accounts as part of a $780 million settlement with Justice. Credit Suisse embarked on a five-year process of closing the Swiss accounts of Americans who refused to disclose them to U.S. authorities. About 18,900 wealthy Americans closed the accounts rather than pay taxes, according to the subcommittee.

Investigators initiated the probe after a 2008 hearing on UBS, during which Credit Suisse bankers acknowledged having U.S. accounts that had not been disclosed to the IRS. The subcommittee collected about 100,000 documents from the bank and conducted 23 interviews with bankers, U.S. government officials and Americans who evaded taxes using hidden Credit Suisse accounts.

At the heart of the tax evasion mess is a long-running dispute between the United States and Switzerland, whose centuries-old culture of banking secrecy has made the country a sanctuary for the world’s rich.  But in August 2013, the two countries struck a deal to allow some Swiss banks to pay fines to avoid or defer prosecution over tax evasion by wealthy American customers. The deal has attracted 106 Swiss banks, which have agreed to disclose some information about U.S. customers. It does not cover the 14 Swiss banks, including Credit Suisse, that are being investigated by Justice.

Justice officials said the department believes that this deal will produce significant information about Americans who had accounts or moved money around once they learned of prosecutors’ investigations.

Congress has also enacted the Foreign Account Tax Compliance Act, requiring foreign banks to disclose U.S. customer accounts every year or pay a 30% tax on their U.S. investment income.

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.

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.

Ten Reasons Against Continued Non-Disclosure Of Your Foreign Income And Foreign Accounts.

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As an incentive to drive taxpayers into the Offshore VoluntaryDisclosure Initiative (OVDI) the U.S. government continues to ramp up its efforts in searching for and flushing out income tax evaders who continue to utilize undisclosed foreign accounts, entities or assets to hide income. Because the IRS has devoted massive resources to publicizing the reporting requirements for offshore assets along with implementing the 2009 and 2011 and the current foreign bank account and asset voluntary disclosure initiatives, taxpayers that are investigated or audited for non-compliance surrounding the reporting of foreign bank accounts or overseas assets, will face an uphill battle in proving they were unaware of their tax reporting obligations.

The U.S. Government is currently taking the following types of actions in an attempt to flush out noncompliance concerning foreign accounts, assets or business activity:

1.         Grand Jury Subpoenas directly to taxpayers suspected of income tax evasion surrounding foreign accounts, assets or business activity.

Perhaps the most aggressive strategy for combating foreign income tax evasion surrounding foreign accounts or assets is where the government is currently issuing subpoenas to individuals suspected of housing funds in Swiss or other off-shore bank accounts that demand copies of their foreign bank statements dating all the way back to 2003.

These subpoenas are out of the ordinary in that they ask the investigated individuals themselves rather than the foreign banks for the statements. These grand jury generated subpoenas specifically asks for copies of statements depicting the highest annual balance for each year since 2003. Anyone who fails to comply with the terms of the subpoena risks being held in contempt of court and facing fines or jail time which often will not end until the jailed individual agrees to comply with the terms of the subpoena.

If the IRS cannot identify a particular taxpayer, it has the option of using a “John Doe” summons. For a John Doe summons, the IRS need only establish that the summons relates to an identifiable group or class, there is a reasonable basis to believe such person(s) have unreported income, and the information sought is not readily available through other sources. In April 2011, a U.S. court authorized service of a John Doe summons on HSBC USA, seeking records from the bank with regard to thousands of suspected non-compliant citizens that used banking services in India.

2.         Investigations surrounding Switzerland’s banking industry

Whenever the U.S. Justice Department obtains evidence of wrongdoing by one or more employees of a corporate entity, through the principle of respondeat superior, the U.S. has a legal basis to file criminal charges against the entity itself. Using the threat of indictment, the U.S. can leverage disclosures of accountholder information and often targeted banking institutions will yield to the request rather than risk the fallout and possible damage to its brand or reputation.

Switzerland’s perceived role as being the world capital in suborning and facilitating U.S. income tax evasion via its 1934 law mandating total privacy of bank accounts has been ground zero for the U.S. government’s attack on income tax and foreign asset noncompliance. It is estimated that Switzerland houses $2 trillion in global capital.

UBS, the biggest Swiss bank, paid $780 million and turned over details concerning 4,450 U.S. account holders to end prosecution by the U.S. Government. The U.S. Justice Department is currently conducting criminal investigations of 11 other Swiss Banks including Credit Suisse, Julius Baer and Basler Kantonalbank.

3.         Investigating Correspondent Banking

Switzerland’s Wegelin & Co. was the employer of three Swiss bankers charged with conspiring to help U.S. clients hide more than $1.2 billion from American tax authorities by making sales pitches to U.S. taxpayer-clients who were fleeing UBS. The indicted bankers allegedly told American clients not to worry about the IRS because their bank “had a long tradition of bank secrecy,” adding that they had advised “their U.S. taxpayer-clients that the bank was less vulnerable to U.S. law enforcement pressure because, unlike UBS, the bank did not have offices outside Switzerland.”

The Wegelin & Co indictment shed light on an obscure corner of hidden offshore wealth concerning the relationships some smaller banks have with bigger banks for moving clients’ money around the world called correspondent banking. In correspondent banking, the smaller bank is the customer of the larger bank, which acts as an agent, or conduit, by accepting deposits, processing other wire transfers and handling other business transactions on behalf of the smaller bank’s clients. Correspondent banking is a staple of the global financial system which allows smaller banks around the world without an overseas presence to send money to clients in other countries via larger banks in those countries.

4.         Pending settlement with Swiss Banking Industry and Swiss Government

A large sector of the Swiss banking industry and the Swiss Government is attempting to hammer out a civil settlement with the U.S. Government covering any wrongdoing. As part of any such settlement, the U.S. Treasury Department is expected to obtain the identity of all Swiss accounts owned by U.S. taxpayers. In order to facilitate the identification of U.S. account holders the banks are increasingly using sophisticated technology, such as face recognition software, to prevent depositors from hiding their true identity.

5.         The implementation of FACTA

The new tax rules that are a part of the Foreign Account Tax Compliance Act (FACTA) of 2010, which applies to individuals and financial institutions, were specifically enacted as part of an effort to cut down offshore tax evasion. Banks worldwide are bracing for new U.S. regulations aimed at reducing tax evasion, which are expected to affect hundreds of billions of dollars’ worth of deposits worldwide. The new tax rules come into full effect starting July 1, 2014.

6.         The implementation of Form 8938 starting with the 2011 tax filing season

A new filing requirement for 2011 and for tax years thereafter is that if the value of your foreign assets is greater than $100,000 at the end of 2011, or if they exceeded $150,000 at any point during 2011, then you need to file Form 8938, Statement of Foreign Financial Assets. This form is specifically designed to identify Foreign Income Generating Assets that have previously not been reported for tax purposes.

7.         Scrutiny over those that renounce citizenship

More and more Americans living outside the U.S. are renouncing their U.S. citizenship on account of increasing tax obligations and stringent reporting requirements. In the Philippines during 2010 for example, more than 1,500 people gave up their U.S. citizenships. Citizens suspected of doing so for the sole purpose of avoiding taxes are barred from re-entering the U.S. under a little known provision in immigration reform called the “Reed Amendment,” which was enacted in 1996. Additionally, if a taxpayer decides to leave the U.S. and declare a different country as their tax home in an attempt to avoid paying U.S. taxes, they must follow an official exit procedure.

8.         Foreign Non filer investigations

The U.S. has income tax treaties with more than 42 countries through which the IRS can ferret out foreign tax filing information by U.S. citizens living in those countries and thus compile a list of persons who have not been filing their U.S. income tax returns. Tax delinquents who subsequently return to the U.S. after living abroad for so many years may likely find themselves swamped by tax assessments and penalties and may be faced with property seizures.

9.         Expats in Asia under investigation

American expats living in Asia are specially coming under close inspection, with their Asian bank accounts being targeted and criminal investigations being intensified since there are suspicions that a lot of overseas companies were set up specifically to avoid payment of U.S. taxes.

10.        Treaties and Mutual Information Exchange Agreements

The U.S. is not the only nation seeking greater compliance and preservation of its taxing authority. There is increasing international pressure for greater transparency with regard to foreign account financial information. The Organization for Economic Co-operation and Development (OECD) and the EU has pushed for the adoption of a model agreement containing provisions allowing for information exchange. In general terms, the model agreement provides for information exchange “without regard to whether the conduct being investigated would constitute a crime under the laws of the requested party if such conduct occurred in the requested party.” Additionally, the agreement would also allow for tax examiners from the requesting country to travel to the requested country to conduct its investigation, including interviews of witnesses and document review.

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) 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.

Is “Present Tax Year Only Disclosure” your answer to IRS Voluntary Disclosure?

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We handle a lot of inquiries from taxpayers trying to figure out if they really need to enter into the 2012 IRS Offshore Voluntary Disclosure Program. Tax preparers have also questioned us on what to do now that they have learned that a client has never reported their foreign income and foreign accounts.  Some tax advisors are recommending that taxpayers merely get into compliance on a go forward basis and do nothing to address the past non-compliance gambling that the IRS does not have the resources to detect the foreign account. I call this “Present Tax Year Only Disclosure”. This could be the worst advice ever.  In my opinion this option is also not viable because of the ease with which the U.S. government can flag Foreign Bank Account Reports (TDF 90-22.1) commonly known as “FBAR′s” and I have heard rumors that the Criminal Investigation Division (CID) has created a group of special agents to monitor for just this occurrence.

How would Present Tax Year Only Disclosure actually work in the real world? 

So let’s think about this first FBAR that a taxpayer is going to file to get into present and future compliance. This FBAR will list the following information – the bank, the account number and the value of the account.

Seems harmless enough. But the truth is that this information tells the IRS a lot more than that. For instance, let’s suppose that the IRS knew, through intense data collection, that any Credit Suisse bank account that starts with “240″ and was opened between 1997 and 1999.  Now it just so happens that this taxpayer’s 2013 FBAR includes a Credit Suisse bank starting with 240 with a balance of $750,000.

So what is this 2013 FBAR really saying? “Hey IRS, here is a foreign bank account that I opened around 1997-1999. I never had an FBAR filing obligation before because the account must have been under $10,000. But now, out of the blue, this account has blossomed from next nothing to $750,000 overnight.”

So then what would the IRS do with that information?  

Well if I were a CID special agent my thought process would be as follows:

The taxpayer has just reported a $750,000 account balance at Credit Suisse. Let’s take a look at his prior returns. Hmmmm… for the last 3 years he has made $50,000 a year or so… Thus… the deposit could not have come from previously taxed U.S. income. Did the taxpayer inherit this money? If he did he better have filed a form 3520 to report the inheritance or I get to hit him with a 35% penalty on the amount of the inheritance! Hmmmm…. No 3520 was filed. Gee… Since I can determine that the funds did not come from previously taxed earnings or from an inheritance there must be something fishy afoot here… Let’s audit this taxpayer. Matter of fact; let’s have the criminal investigation division take a look as well…

As you can see, this is not a viable option.

The IRS Civil Division has the ability to assess FBAR penalties, and the penalty is 50% of that account’s value for the year. Armed with a John Doe summons, the IRS could assess FBAR penalties for each of the years.

Additionally, because the taxpayer failed to include the interest earnings on his Credit Suisse account and most likely checked the box “no” on schedule B which asks about the existence of foreign accounts, the taxpayer has also filed false and fraudulent income tax returns for which he has exposure to the 75% civil fraud penalty. Unlike the normal six year statute of limitations for tax evasion, there is no statute of limitations for the civil fraud penalty.

So when doing the math from the fallout of a Present Tax Year Only Disclosure, the amount due could exceed the value of the accounts meaning the taxpayer could wind up with nothing, the accounts totally wiped out, or even a tax bill placing all of the taxpayer’s wealth at risk, not just his offshore accounts.  And the taxpayer could still face criminal charges.

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) 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.

Final FATCA rules are issued – Deadline Is July 1, 2014 For Foreign Banks To Disclose U.S Account Holders To IRS

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Last week the IRS released a large package of regulations needed to implement the Foreign Account Tax Compliance Act (FATCA). FATCA, enacted as part of the Hiring Incentives to Restore Employment Act of 2010, P.L. 111-147, requires U.S. withholding agents to withhold tax on certain payments to foreign financial institutions (FFIs) that do not agree to report certain information to the IRS regarding their U.S. accounts and on certain payments to certain nonfinancial foreign entities (NFFEs) that do not provide information on their substantial U.S. owners to withholding agents. FATCA withholding goes into effect July 1, 2014.

One significant change is to accommodate direct reporting by certain entities about their substantial U.S. owners to the IRS rather than to withholding agents.  What this means is that your foreign bank can now directly report U.S. account holders directly to IRS without going through any third party or foreign government agency and be in compliance with FATCA.

The IRS has also made it easy for foreign banks to report U.S. account holders through an online FATCA registration system IRS has launched.  FFIs that are required to participate or else face withholding on their U.S. investments include:

  • Depository institutions, such as banks;
  • Custodial institutions, such as mutual funds;
  • Investment entities, such as hedge funds; and
  • Certain insurance companies that have cash-value products or annuities.

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.

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 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.

Your Foreign Bank Is Disclosing You To The IRS

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The IRS has various ways to find out about international or overseas bank accounts.  The Foreign Account Tax Compliance Act (“FATCA”) which was passed by Congress in March 2010 requires foreign financial institutions to register with and report to the IRS certain information about their U.S. account holders.

The foreign financial institutions include, but are not limited to depositary institutions (e.g., banks), custodial institutions (e.g., mutual funds), investment entities (e.g., hedge funds or private equity funds) and certain types of insurance companies that have cash value products or annuities.

The foreign financial institutions are required to report information such as the identities of their U.S. account holders, the social security numbers of the U.S. account holders, the account numbers, account balances and income, such as interest and dividends earned on the foreign account.  If the foreign financial institutions do not register and agree to report, they face a 30% withholding tax on certain U.S.-source payments made to them.  With July 1, 2014 being the deadline under FATCA for compliance, virtually all foreign financial institutions have now established procedures to identify U.S. account holders and have each U.S. account holder sign a Form W-8 BEN or face closure of their account.

Under these procedures, the foreign bank will send you a letter that you have been identified as a U.S. accountholder to be reported to the IRS.  As such, the bank will ask you to submit proof that you have entered into 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.  If you have engaged tax counsel and entered into this program, you need not worry.

In addition, under the Bank Secrecy Act of 1970 financial institutions are required to report any deposit, withdrawal and transfer of $10,000 or more to the IRS.  These reporting requirements include international transactions and have been used as a basis to investigate taxpayers who have assets overseas.  So even if a U.S. taxpayer were to refuse to cooperate with the foreign financial institution and that bank were to close the account, the transfer of the funds out of that institution would be 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 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.

How Does the IRS Find Out About Foreign Bank Accounts?

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The IRS has various ways to find out about international or overseas bank accounts.  The Foreign Account Tax Compliance Act (“FATCA”) which was passed by Congress in March 2010 requires foreign financial institutions to register with and report to the IRS certain information about their U.S. account holders.

The foreign financial institutions include, but are not limited to depositary institutions (e.g., banks), custodial institutions (e.g., mutual funds), investment entities (e.g., hedge funds or private equity funds) and certain types of insurance companies that have cash value products or annuities.

The foreign financial institutions are required to report information such as the identities of their U.S. account holders, the social security numbers of the U.S. account holders, the account numbers, account balances and income, such as interest and dividends earned on the foreign account.  If the foreign financial institutions do not register and agree to report, they face a 30% withholding tax on certain U.S.-source payments made to them.  With July 1, 2014 being the deadline under FATCA for compliance, virtually all foreign financial institutions have now established procedures to identify U.S. account holders and have each U.S. account holder sign a Form W-8 BEN or face closure of their account.

In addition, under the Bank Secrecy Act of 1970 financial institutions are required to report any deposit, withdrawal and transfer of $10,000 or more to the IRS.  These reporting requirements include international transactions and have been used as a basis to investigate taxpayers who have assets overseas.  So even if a U.S. taxpayer were to refuse to cooperate with the foreign financial institution and that bank were to close the account, the transfer of the funds out of that institution would be reported to IRS.

Another tool used by IRS is to get a Federal Court to issue “John Doe summonses” and have them served on financial institutions to investigate a foreign financial institution’s compliance in reporting U.S. account holders.  Unlike a normal summons which allows the IRS to find out information regarding a specific taxpayer whose identity the IRS knows, a John Doe summons allows the IRS to get the names of all taxpayers in a certain group.  In 2009, this very powerful tool allowed the IRS to get the names of many non-complying taxpayers in its investigation of Swiss banking giant UBS, eventually leading to UBS paying $780 million to settle the investigation.

Finally, the IRS has created a special unit to compare information they have received from the foreign financial institutions with what was reported to the IRS by each taxpayer on his or her present and past income tax returns.  You can bet that if you did not file FBAR’s or report your worldwide income, this group will pick up this discrepancy and have an audit or investigation started on you.

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) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS.  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.