Jeffrey B. Kahn, Esq. Discusses IRS Progress In Finding Taxpayers With Undisclosed Foreign Accounts On ESPN Radio – November 7, 2014 Show

Topics Covered:

1. The Story Of Bradley Charles Birkenfeld And How Because Of His Actions No Longer Can Foreign Accounts Be A Secret.
2. A. With full implementation of FATCA, Foreign Account Tax Compliance Act, when do you start disclosing your foreign bank accounts and foreign income and how should you disclose?
3. Nine Things That Will Elevate Your Chances Of Being Targeted By IRS For Past Nondisclosure Of Foreign Accounts and/or Failure To Report Worldwide Income.
4. So you have not disclosed your foreign bank accounts. What you should expect your tax preparer to ask you when you come in to get your taxes prepared next year.
5. Questions from our listeners:
6. For the last ten years I maintained a foreign bank account which was never disclosed to the IRS and the IRS has not caught me. What makes you think they will catch me now?
7. I have an undisclosed foreign bank account. What if I just close out the account and transfer the money to the U.S?
8. I have a small amount in an undisclosed foreign account. It is true that the IRS will not bother with me because I am a small fish?
9. It is true the IRS has programs in place that if I come forward the IRS may waive any criminal prosecution and charge a reduced penalty?
10. I told my CPA that I have a foreign bank account that was never disclosed. Should I follow his advice and just amend prior year’s returns and file them with IRS?

Yes we are all working for the tax man!

Good afternoon! Welcome to the KahnTaxLaw Radio Show

This is your host Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.

 

You are listening to my weekly radio show where we talk everything about taxes from the ESPN 1700 AM Studio in San Diego, California.

 

When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

It is my objective to make you smarter so that you legally pay the least tax as possible, avoid tax problems and be aware of the strategies and solutions if you are being targeted by the IRS or any State tax agency.

Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into our website at www.kahntaxlaw.com.

If you have an undisclosed foreign bank account, then you better listen carefully to today’s show and helping me out today will be my associate attorney Amy Spivey who will be calling in later in today’s show. I also have calling into the studio my guest, Matthew J. Kahn, CPA who will be providing his helpful insight as well.

In November most people are starting to think about all the year-end holidays and celebrations. And as the close of the year approaches, more and more people will start thinking about taxes. And with the close of 2014 coming up quicker than you think, 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.

Well thanks to a man called Bradley Charles Birkenfeld, no longer can these foreign accounts be a secret.

Birkenfeld, an American citizen who grew up in Boston and educated at the American Graduate School of Business in Switzerland was an up and coming banker rising through the ranks of Switzerland’s greatest bank, UBS. Working at UBS in Geneva, Switzerland, as a private banker offering wealth management services, his principal job responsibility over his 5-year tenure at UBS was to solicit wealthy Americans to move their assets to the bank, enabling them to hide their funds due to Switzerland’s strict banking secrecy laws and thus avoid paying U.S. taxes.

Birkenfeld and other similar employees advised American clients how to avoid IRS scrutiny, including placing cash and jewels in Swiss safe

deposit boxes.

Birkenfeld was living the high life with UBS going to UBS sponsored events like art shows and yacht races in the United States to attract wealthy people as potential clients. The events gave its Switzerland-based bankers, who essentially behaved as salesmen offering the product of a Swiss tax haven, a chance to network with the rich in order to cement deals, which was illegal under U.S. banking laws.

One of Birkenfeld’s wealthiest clients was billionaire California real estate developer, Igor Olenicoff. Birkenfeld arranged for him to transfer $200 million to UBS and for Olenicoff to have these funds accessible via credit cards supplied to him by Birkenfeld. Birkenfeld then introduced Olenicoff to other bankers at UBS who helped him create off-shore companies to hid his assets and evade taxes.

Olenicoff subsequently pleaded guilty to tax evasion and paid a $52 million fine, but avoided a jail sentence. Apparently the DOJ had their sites on a bigger target – that being Birkenfeld.

Birkenfeld continued work at UBS until 2005 when he resigned. To this day it is not clear why he resigned – could it be he did not get the raise or bonus he expected? Maybe he did not get that promotion he thought he deserved?

What he did end up doing was going to the DOJ and informing the DOJ of UBS’ business practices.

At the same time, Birkenfeld wanted to take advantage of a new federal whistleblower law [the Tax Relief and Health Care Act of 2006] that could pay him up to 30% of any tax revenue recouped by the IRS as a result of Birkenfeld’s information.

Birkenfeld also wanted immunity from prosecution for his part in UBS’s transactions.

Essentially Birkenfeld wanted to have his cake and eat it too!

When Birkenfeld saw that the DOJ was not meeting his demands, he contacted the Securities and Exchange Commission, the IRS, and the U.S. Senate.

You would think with all of this information Birkenfeld would receive royal treatment by the Federal government. Instead, in May 2008, Birkenfeld was arrested in Boston when he deplaned from Switzerland. He was arraigned at the U.S. District Court, Southern District of Florida.

The DOJ prosecutor in the case justified the prosecution of Birkenfeld by claiming he failed to be forthcoming about his clients, specifically, Igor Olenicoff.

Eventually Birkenfeld agreed to plead guilty to a single count of conspiracy to defraud the United States.   Birkenfeld was sentenced by the U.S. District Judge to 40 months in prison and paying a $30,000 fine.

Since Birkenfeld blew the whistle on the UBS tax evasion scandal in 2007, UBS has been able to avoid prosecution by agreeing to pay a fine of $780 million to the U.S. government.

Additionally, UBS paid $200 million for settlement with the U.S. Securities Exchange Commission (SEC) to avoid a trial on UBS’ alleged conduct that the company facilitated the ability of certain U.S. clients to maintain undisclosed accounts in Switzerland and other foreign countries, which enabled those clients to avoid paying taxes related to the assets in those accounts.

Finally to avoid additional fines, UBS agreed to provide the names of all Americans who had offshore accounts with UBS (this totaled more than 4,500 names).

In the wake of the UBS scandal, the erosion of Switzerland’s fabled bank secrecy culminated when Switzerland officially signed on October 15, 2013 a treaty called the Convention on Mutual Administrative Assistance in Tax Matters.  By Switzerland signing the treaty, they no longer could be a tax haven for offshore assets. The U.S. had won its war against Switzerland!

This then set the stage for the IRS’ worldwide campaign to break into foreign financial institutions and uncover U.S. accountholders.

So what ended up becoming of Birkenfeld? Birkenfeld was able to get his sentence commuted and ended up serving about 32 months. In September 2012, the IRS Whistleblower Office awarded Birkenfeld $104 million as a whistleblower. After serving a 32 month jail sentence – that equates to daily compensation of about $105,000.00.

And for everyone else who has an undisclosed foreign bank and does not take the appropriate steps, you are about to suffer a huge financial hemorrhage and be at risk to loose your freedom.

Well it’s time for a break but stay tuned because we are going to tell you Nine Things That Will Elevate Your Chances Of Being Targeted By IRS For Past Nondisclosure Of Foreign Accounts and/or Failure To Report Worldwide Income.

You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team.

Calling into the studio from our San Francisco Office is my associate attorney, Amy Spivey.

Chit chat with Amy

So Amy in today’s show we are focusing on the issue that 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?

Amy I understand that not too long ago Congress gave the IRS broad powers to tackle this problem of taxpayers not disclosing their foreign accounts. Please tell us about this legislation.

Amy replies, FATCA – Foreign Account Tax Compliance Act.

This legislation became law in 2010. Starting in 2014, the IRS will have the ability to match taxpayers’ returns against the information it receives on U.S. taxpayers with accounts at foreign financial institutions. The IRS will likely scrutinize taxpayers who have not filed the required Form 8938, Statement of Specified Foreign Financial Assets, or FinCen Form 114, Report Of Foreign Bank Account (commonly known as “FBAR”). Our office has a lot of cases representing taxpayers with undisclosed foreign bank accounts – it is a hot issue with IRS.

Jeff asks, how is it that foreign banks are acceding to IRS demands for information on U.S. account holders?

Amy, replies: Under FATCA if a foreign bank cannot certify that it has reported its U.S. accountholders to the IRS, that foreign bank will be subject to 30% withholding tax on its U.S. investments.

Jeff asks: So if one has a foreign bank account, how are they getting notified by the foreign bank?

Amy replies: The account holder will be asked to complete a W-9 Form.

Jeff asks: And if the accountholder fails, what happens?

Amy replies, their account will be frozen by the bank and this will be reported to IRS.

Jeff says, PLUG: Having undisclosed foreign accounts or any other tax problem will only get worse if you ignore these problems. The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff says, Now Amy you have done some research and found Nine Things That Will Elevate Your Chances Of Being Targeted By IRS For Past Nondisclosure Of Foreign Accounts and/or Failure To Report Worldwide Income.

Jeff to read off each item for Amy to then comment.

1. Starting to report foreign income on your 2014 income tax return and disregarding the fact that you did not disclose this in previous years.
2. Starting to report your foreign accounts on an FBAR in 2014 and disregarding the fact that you did not disclose this in previous years.
3. Filing delinquent FBAR’s with or without statement as to why they are filed late.
4. Filing amended income tax returns identifying that you have foreign accounts and reporting foreign income.
5. Supplying your foreign bank with your identifying information so that the bank can report you to IRS.
6. Ignoring requests from your foreign bank for your identifying information.
7. Transferring funds from the U.S. to your foreign account or from the foreign account to the U.S.
8. Paying your credit cards and other bills from an account associated with a foreign bank.
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).

Jeff says, PLUG: I cannot stress enough of the importance that if you have undisclosed foreign accounts or any other tax problems that you take action now. Call the Law Offices Of Jeffrey B. Kahn. When you mention the KahnTaxLaw Radio Show when making an appointment we will provide you with a Tax Resolution Plan which is a $500.00 value for free. You will meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Thanks Amy for calling into the show. Amy says, Thanks for having me.

Stay tuned because after the break Matthew J. Kahn, CPA will be joining me and he is going to tell you what you should expect your tax preparer to ask you when you come in to get your taxes prepared next year.

You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team.

Calling into the studio from South Florida is Matthew J. Kahn, CPA.

Chit chat with Matt

Jeff says: This is Matt’s first time on the show any by the way of full disclosure, Matt is my brother. Matt is a Certified Public Accountant and a Certified Chartered Global Management Accountant and has his own accounting practice in South Florida. He represents clients not only in South Florida but all over the country and internationally. In fact we have some cases that we are working on together where the clients live abroad.

Jeff asks Matt, the first thing that I know comes to someone’s mind is: WHAT ARE THE THREE MOST COMMON INSTANCES THAT SOMEONE WOULD HAVE AN UNDISCLOSED FOREIGN BANK ACCOUNT?

Matt replies:

1. A relative in a foreign country opens a bank account when you were a child and never told you about it.
2. You lived in a foreign country and set up an account there and then came back to the U.S.
3. A relative died and left you with a foreign account.

Jeff states OK so you have given us some examples of how an undisclosed foreign bank account could arise. Jeff asks Matt – so when someone has a foreign account, what are the four filing requirements one must follow?

Matt replies:

1. Must include worldwide income on your income tax return.
2. Look at Schedule B of the return and check off yes to the box inquiring whether you have a foreign bank account.
3. Complete Form 8939 and attach it to the return.
4. File by June 30^th the FBAR (Form Fin CEN 114).

Jeff asks Matt: WHAT ARE THE PENALTIES?

Matt replies: The most significant penalty is the penalty for failure to file a Form TD F 90-22.1 (now known as FinCEN 114), Report of Foreign Bank and Financial Accounts (“FBAR”). 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. Non-willful violations that are not due to reasonable cause incur a penalty of $10,000 per violation – that is $10,000.00 per account/per year. Considering that the government can go back 6 years, this non-willful penalty can expand rather quickly.

Criminal penalties are also possible, and can include fines of up to $500,000 and/or 10 years in prison.

Jeff says: Those are some serious penalties. If you have undisclosed foreign bank accounts you should not ignore this. We have a special offer for our listeners. The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff asks Matt: As a CPA who prepares tax returns for your clients, is there some authority of the IRS that you most follow?

Matt replies: Yes the IRS puts out a Code Of Professional Responsibility commonly called Circular 230 which if a tax preparer violates could lead to big penalties and sanctions for that tax preparer.

Jeff asks Matt, What kind of penalties could a tax preparer be looking at?

Matt replies: Internal Revenue Code § 6694(a) provides that if any part of an understatement of a taxpayer’s liability is due to an “unrealistic position” taken on his return, any income tax return preparer who knew (or reasonably should have known) of this position is subject to a penalty of $250. If the understatement is due to a reckless or intentional disregard of rules or regulations the penalty is $1,000 per occurrence. The preparer’s employer, firm or entity also is subject to the penalty if it knew, or reasonably should have known, of the conduct giving rise to the penalty. While these may not seem like large amounts, if this penalty is assessed IRS employees are instructed to report the income tax return preparer to the IRS Office of Professional Responsibility also known as OPR. A preparer who is referred to the IRS’s Office of Professional Responsibility, may be subject to suspension, disbarment, or censure. In addition, if the preparer has violated Circular No. 230, the IRS may impose a monetary penalty in an amount up to the gross income derived or to be derived from the conduct giving rise to the penalty.

Jeff asks, can the IRS go criminal on the tax preparer?

Matt replies: Unscrupulous tax return preparers are generally prosecuted for violation of the Internal Revenue Code §7201, Attempt to Evade or Defeat Tax, is a felony offense and carries a maximum potential penalty of up to five years in prison and a fine of up to $250,000. Title 26, U.S. Code, Section 7206 (1) and (2), Fraud and False Statements, carries a maximum potential penalty of up to three years in prison and a fine up to $250,000.

Jeff asks: Those are some serious penalties. What is one of the main obligations that a tax preparer must follow?

Matt replies: Circular 230 §10.22 Diligence as to accuracy which states that:

Each attorney, certified public accountant, enrolled agent, or enrolled actuary shall exercise due diligence:

1. In preparing or assisting in the preparation of, approving, and filing tax returns, documents, affidavits, and other papers relating to Internal Revenue Service matters;
2. In determining the correctness of oral or written representations made by the practitioner to the Department of the Treasury; and
3. In determining the correctness of oral or written representations made by the practitioner to clients with reference to any matter administered by the Internal Revenue Service.

Jeff asks: So Matt this does not mean that you as a tax preparer have to actually audit or examine the records of your client.

Matt replies: No a tax preparer would not be auditing or examining a client’s records. Under Circular 230, section 10.34(d), a practitioner may generally rely, in good faith and without verification, on information furnished by a client. However, good faith reliance contemplates that a practitioner will make reasonable inquiries when a client provides information that implies possible participation in overseas transactions/accounts subject to FBAR requirements.

Jeff states, so a tax preparer can reply on information provided by the client in good faith. But what if the client makes certain statements that sound suspicious?

Matt replies, a practitioner may not ignore the implications of any information provided to or actually known by the practitioner. If the information furnished by the client appears to be incorrect, inconsistent with other known facts, or incomplete, the practitioner is required to make further inquiry. The practitioner is also required by Circular 230, section 10.34(c), to advise a client of any potential penalties likely to apply to a position taken on a return the practitioner is preparing or on which she or he is advising.

Now Matt being a tax preparer you get a lot of people that come to you mostly once a year to get their tax returns done. With the IRS having more resources and information to detect taxpayers with undisclosed foreign accounts, what changes should taxpayers expect when they next meet with their tax preparer?

Matt replies, you can expect your tax preparer to ask the following questions:

• Does the client have a foreign account?
• If yes, is it the type of account that is covered by 31 U.S.C. Section 5314?
• If applicable, has the client properly completed Form 1040, Schedule B, Interest and Ordinary Dividends, Part III, Line 7a?
• Has the client annually reported the income from the account?
• Has the client filed FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (FBAR)?
• Has the client filed Form 8938, Statement of Specified Foreign Financial Assets, with his or her federal income tax return?
• Has the IRS already contacted the client about the foreign account?

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

You have been listening to Matthew J. Kahn, CPA and if you would like to get in touch with Matt you visit his website at www.yourfloridacpa.com. Thanks Matt for calling into the show. Matt says, Thanks for having me.

Stay tuned as we will be taking some of your questions. You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team. For the last segment of each show, I like to pull your questions and do my best to answer them over the air.

If you would like to post a question for us to answer, you can go to our website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

So let me start with this week’s set of questions.

1. For the last ten years I maintained a foreign bank account which was never disclosed to the IRS and the IRS has not caught me. What makes you think they will catch me now?
2. Full implementation of FATCA now mandates reporting of U.S. accountholders by foreign banks to the IRS.
3. IRS has the resources and systems in place to track down and enforce the tax laws on non-compliant taxpayers.
4. Tax preparers are under pressure by IRS to follow due diligence when preparing tax returns.
5. I have an undisclosed foreign bank account. What if I just close out the account and transfer the money to the U.S?
6. The closure of the account and transfer of the funds does not cure past non-compliance.
7. The foreign bank will still report the closed account to IRS and monies that are transferred will be reported through normal banking channels.
8. I have a small amount in an undisclosed foreign account. It is true that the IRS will not bother with me because I am a small fish?
9. IRS is looking to collect a lot of revenue – catching a lot of small fish adds up to a lot.
10. It is true the IRS has programs in place that if I come forward the IRS may waive any criminal prosecution and charge a reduced penalty?

Yes – being proactive and coming forward under one of these programs would be in your best interest. You do not want to wait for the IRS to find you. By then it is too late and you cannot get into one of the IRS’ programs.

5. I told my CPA that I have a foreign bank account that was never disclosed. Should I follow his advice and just amend prior year’s returns and file them with IRS?

That is what we call a quiet disclosure or silent disclosure. It does not work because the IRS is programmed to intercept these filings and have the taxpayers turned over for audit or investigation.

PLUG: Having undisclosed foreign bank accounts is something that we take seriously and so should you. The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Well we are reaching the end of our show.

You can reach out to me on Twitter at kahntaxlaw. You can also send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com. That’s k-a-h-n tax law.com.

Have a great day everyone and a great weekend!