Is a SICAV a PFIC Taxable and Reportable in the US?
Is a SICAV a PFIC for IRS Tax and Reporting: Depending on which country you maintain your foreign or offshore assets, one type of foreign investment you may have is referred to as a SICAV. A SICAV is a type of investment which is often seen in European countries. Technically, a SICAV is a société d’investissement à capital variable, but to you, it is a U.S. tax headache. The SICAV has components that mimic a mutual fund or ETF in the U.S.
In other words, there is a fund that is held in a company form that issue shares for investors to invest in. Then, the investment manager of the fund invests the capital into various different securities. Depending on the securities the fund invests in, this type of investment may be risk heavy or risk averse.
As a result, this may lead to significant tax and reporting consequences on a tax return – and may involve PFIC and Form 8621 – but not always.
The concept of a SICAV is the concept of aggregate investing by a fund into several underlying securities.
In other words, instead of purchasing one stock and putting all your eggs in one basket, the funds invests in various securities.
This is similar to a mutual fund in the United States. As with mutual funds, the SICAV comes in all different shapes and sizes.
In addition, depending on the specific type of SICAV and the country or origin, it will impact how it is regulated, and how the ownership is held amongst different investors.
Different countries have their own versions of SICAV.
It depends on how the SICAV is structured.
One of the key components of the SICAV, which brings it into PFIC territory is that it is a fund owned by a company.
For a brief recap on PFIC, a PFIC may include foreign mutual funds.
A Foreign Mutual Fund is a contained investment vehicle held in a entity such as a corporation designated for the specific fund.
The crux of it is that the reason why a SICAV maybe considered a PFIC is the same reason why a foreign mutual fund is considered a PFIC.
That is because the fund is housed in a company which is primarily comprised of passive assets and or assets generating primarily passive income.
Generally, it is going to be reported on the FBAR if an account is associated with it — as well as a Form 8938 or 8621.
Since technically when a person invests in the SICAV they will receive an account number or similar identification number, it is included on the FBAR even though ownership foreign corporations are generally not included on the FBAR (while the accounts held by the corporation would be).
If it is considered a passive foreign investment company, then it would be included on Form 8621, and if there were excess distributions, it will also include a very complicated excess distribution calculation.
If the SICAV is considered a passive foreign investment company (“PFIC”) then each individual fund or SICAV must be dealt with separately in order to determine each SICAV’s share basis, shares owned, distributions, etc.
The SICAV would be taxed similar to a foreign mutual fund based on how long each fund is been held, reinvested dividend values, etc.
If you’re out of compliance for prior years and need assistance with offshore disclosure, we can help you safely get into offshore compliance.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post Is a SICAV a PFIC for IRS Tax and Reporting? appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>Criminal Tax Willfulness
Criminal Tax, Willfulness & Voluntary Disclosure: There is a common misconception about what the traditional voluntary disclosure program is used for in relation to willfulness. When it comes to civil violations, willfulness does not require deliberate or knowledge as it does in the criminal arena. For example, with FBAR Violations, willfulness may include Reckless Disregard (lacks actual intent) and Willful Blindness (lacks actual knowledge). When it comes to criminal willfulness, it requires more. And, like all crimes, the U.S. Government must prove the crime happened “beyond a reasonable doubt.”
With voluntary disclosure, the taxpayer will usually avoid the streamlined program (in a post-OVDP world) because they cannot certify under penalty of perjury that they are non-willful.
Even if they are willful in the civil arena, this does not mean they are criminally willful and/or subject to a potential IRS Special Agent Investigation not potential criminal indictment.
If your, or your “friend” believes they may become subject to an IRS Investigation, it is important to understand the distinction between civil and criminal tax violations.
If a person fails to report their income because they forgot to include it in their tax return, or legitimately and reasonably believed it was not taxable in the U.S. (such as foreign exempt interest) then that is not willful.
In other words, if a person did not act with the intent to defraud the U.S. Government, then (absent other facts) they cannot be criminally liable for the unreported income.
David earns significant income from worldwide investments.
David has a CPA and David is aware that he has to report all of his income from around the world in the United States, since the U.S. taxes on worldwide income.
David received his statements from the foreign institutions, but intentionally did not tell his CPA about the income because he did not want to report it (even though the CPA did ask about any income earned outside of the Unites States), and pay tax on it (it is earned tax-free abroad, so he has not tax credits to apply).
Therefore, David willfully and with the intent to defraud the U.S. Government, did not report the income. This is a crime.
As provided in summary by the DOJ:
The prohibition of 18 U.S.C. § 1001 requires that the false statement, concealment or cover up be “knowingly and willfully” done, which means that “The statement must have been made with an intent to deceive, a design to induce belief in the falsity or to mislead, but § 1001 does not require an intent to defraud — that is, the intent to deprive someone of something by means of deceit.” United States v. Lichenstein, 610 F.2d 1272, 1276-77 (5th Cir.), cert. denied, 447 U.S. 907 (1980). The government may prove that a false statement was made “knowingly and willfully” by offering evidence that defendants acted deliberately and with knowledge that the representation was false. See United States v. Hopkins, 916 F.2d 207, 214 (5th Cir. 1990).
The term “willfully” means no more than that the forbidden act was done deliberately and with knowledge, and does not require proof of evil intent. McClanahan v. United States, 230 F.2d 919, 924 (5th Cir. 1955), cert. denied, 352 U.S. 824 (1956); McBride v. United States, 225 F.2d 249, 255 (5th Cir. 1955), cert. denied, 350 U.S. 934 (1956).
An act is done “willfully” if done voluntarily and intentionally and with the specific intent to do something the law forbids. There is no requirement that the government show evil intent on the part of a defendant in order to prove that the act was done “willfully.” See generally United States v. Gregg, 612 F.2d 43, 50-51 (2d Cir. 1979); American Surety Company v. Sullivan, 7 F.2d 605, 606 (2d Cir. 1925)(Hand, J.); United States v. Peltz, 433 F.2d 48, 54-55 (2d Cir. 1970),cert. denied, 401 U.S. 955 (1971) (involving 15 U.S.C. § 32(a). See also 1 E. Devitt, C. Blackmar, M. Wolff & K. O’Malley, Federal Jury Practice and Instructions, § 17.05 (1992).
The U.S. Government has hit some roadblocks along the way:
The 9th Circuit Court of Appeals held that (regarding disallowing a debt to discharged re: Tax Evasion)
“Therefore, a mere showing of spending in excess of income is not sufficient to establish the required intent to evade tax; the government must establish that the debtor took the actions with the specific intent of evading taxes.
Indeed, if simply living beyond one’s means, or paying bills to other creditors prior to bankruptcy, were sufficient to establish a willful attempt to evade taxes, there would be few personal bankruptcies in which taxes would be dischargeable.”
The 7th Circuit Court of Appeals held that (regarding requiring defendant to actually testify to assert a good-faith defense to a criminal tax charge):
“The court erred in thinking that evidence of Kokenis’s state of mind had to come from Kokenis’s own testimony. See, e.g., United States v. Lindo, 18 F.3d 353, 356 (6th Cir.1994)
[T]he standard of evidence necessary to warrant a [good-faith reliance] instruction cannot include an absolute requirement that the taxpayer must testify, for that would burden the taxpayer’s own Fifth Amendment right against self-incrimination.”
Oftentimes, if a person committed a tax crime, BUT the money was legally sourced, then the applicant can reduce the chance of a criminal investigation by proactively submitting to IRS Voluntary Disclosure.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post Criminal Tax Willfulness & Voluntary Disclosure appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>Form 1040-C Departing Tax Return
IRS Form 1040-C: A common question we receive about expatriation involves the distinction between a Long-Term Resident (Green Card Holder 8 of the last 15 years), and a Visa Holder who has resided in the U.S. for a “long-Time.” In the former situation, a person may be deemed a covered expatriate and subject to exit tax. In the latter, the person is not a Long-Term Resident, no matter how long they have resided in the U.S.
Why?
Because a Long-Term Resident is a Lawful Permanent Resident, and a visa holder is not “Permanent Resident.” By definition, visas are temporary.
Still, the Visa Holder (along with permanent residents) has additional filing requirements as well (also required by Permanent Residents), informally referred to as IRS “sailing permit.”
The Form 1040-C is a supplement to Expatriation for permanent residents, and is also required by non-residents (Unlike Form 8854 which is only for LTR and U.S. Citizens)
As provided by the IRS:
“Form 1040-C is used by aliens who intend to leave the United States or any of its possessions to:
A resident alien subject to U.S. tax on Worldwide Income includes aliens who meet the Substantial Presence Test.
As further provide by the IRS:
“You are considered a resident alien if you meet either the green card test or the substantial presence test. However, even though you otherwise would meet the substantial presence test, you will not be considered a U.S. resident if you qualify for the closer connection to a foreign country exception or you are able to qualify as a nonresident alien by reason of a tax treaty.”
No. The IRS Form 1040-C is filed in addition to form 1040 or 1040 NR.
A Form 1040-C is not a final return.
“You must file a final income tax return after your tax year ends.
If you are a U.S. citizen or resident alien on the last day of the year, you should file Form 1040 or 1040-SR reporting your worldwide income.
If you are not a U.S. citizen or resident alien on the last day of the year, you should file Form 1040-NR.”
However, certain individuals who were resident aliens at the beginning of the tax year but nonresident aliens at the end of the tax year must file a “dual-status” return.
Any tax you pay with Form 1040-C counts as a credit against tax on your final return.
Any overpayment shown on Form 1040-C will be refunded only if and to the extent your final return for the tax year shows an overpayment.”
Once the form 1040-C is filed, a person will subsequently receive a Certificate of Compliance.
As provided by the IRS:
“The issuance of a certificate of compliance is not a final determination of your tax liability. If it is later determined that you owe more tax, you will have to pay the additional tax due.
If you are an alien, you should not leave the United States or any of its possessions without getting a certificate of compliance from your IRS Field Assistance Area Director on Form 1040-C or Form 2063, U.S. Departing Alien Income Tax -2- Form 1040-C (2020) Statement, unless you meet one of the Exceptions, explained later. You can file the shorter Form 2063 if you have filed all U.S. income tax returns you were required to file, you paid any tax due, and either of the following applies.
• You have no taxable income for the year of departure and for the preceding year (if the time for filing the earlier year’s return has not passed).
• You are a resident alien with taxable income for the preceding year or for the year of departure, but the Area Director has decided that your leaving will not hinder collecting the tax.”
There are some exceptions to having to file the form, which include:
You are a representative of a foreign government who holds a diplomatic passport, a member of the representative’s household, a servant who accompanies the representative, an employee of an international organization or foreign government whose pay for official services is exempt from U.S. taxes and who has no other U.S. source income, or a member of the employee’s household who has no income from U.S. sources. However, if you signed a waiver of nonimmigrant’s privileges as a condition of holding both your job and your status as an immigrant, this exception does not apply, and you must get a certificate.
You are a student, industrial trainee, or exchange visitor, or the spouse or child of such an individual. To qualify for this exception, you must have an F-1, F-2, H-3, H-4, J-1, J-2, or Q visa.
Additionally, you must not have received any income from sources in the United States other than:
a. Allowances covering expenses incident to your study or training in the United States (including expenses for travel, maintenance, and tuition);
b. The value of any services or accommodations furnished incident to such study or training;
c. Income from employment authorized under U.S. immigration laws; or
d. Interest on deposits, but only if that interest is not effectively connected with a U.S. trade or business.
You are a student, or the spouse or child of a student, with an M-1 or M-2 visa. To qualify, you must not have received any income from sources in the United States other than: a. Income from employment authorized under U.S. immigration laws, or b. Interest on deposits, but only if that interest is not effectively connected with a U.S. trade or business.
Any of the following applies.
a. You are on a pleasure trip and have a B-2 visa.
b. You are on a business trip, have a B-1 visa or a combined B-1/B-2 visa, and do not stay in the United States or any of its possessions for more than 90 days during the tax year.
c. You are passing through the United States or any of its possessions, including travel on a C-1 visa or under a contract, such as a bond agreement, between a transportation line and the U.S. Attorney General.
d. You are admitted on a border-crossing identification card.
e. You do not need to carry passports, visas, or border-crossing identification cards because you are
(i) visiting for pleasure or
(ii) visiting for business and do not stay in the United States or any of its possessions for more than 90 days during the tax year.
f. You are a resident of Canada or Mexico who commutes frequently to the United States to work and your wages are subject to income tax withholding.
g. You are a military trainee admitted for instruction under the Department of Defense and you will leave the United States on official military travel orders.
However, exception 4 does not apply if the Area Director believes you had taxable income during the current tax year through your departure date or the preceding tax year and your leaving the United States would hinder collecting the tax.
The IRS Provides specific instructions on how to obtain a 1040-C.
“To get a certificate of compliance, you must go to an IRS office at least two weeks before you leave the United States and file either Form 2063 or Form 1040-C and any other required tax returns that have not been filed. The certificate may not be issued more than 30 days before you leave. If both you and your spouse are aliens and both of you are leaving the United States, both of you must go to the IRS office. To find an IRS office, click on Contact Your Local IRS Office and enter your zip code to find the nearest office.
Please note that all Taxpayer Assistance Centers (TACs) operate by appointment. Services are limited and not all services are available at every TAC office. Call 844-545-5640 to schedule an appointment.
Remember that you must visit an IRS office at least two weeks (but no more than 30 days) before you leave the United States, so make sure you call for an appointment well before those time frames. Please be prepared to furnish your anticipated date of departure and bring the following records with you if they apply. 1. A valid passport with your alien registration card or visa.
2. Copies of your U.S. income tax returns filed for the past 2 years. If you were in the United States for less than 2 years, bring copies of the income tax returns you filed for that period.
3. Receipts for income taxes paid on these returns.
4. Receipts, bank records, canceled checks, and other documents that prove your deductions, business expenses, and dependents claimed on the returns.
5. A statement from each employer you worked for this year showing wages paid and tax withheld. If you are self-employed, you must bring a statement of income and expenses up to the date you plan to leave.
6. Proof of any payments of estimated tax for the past year and the current year.
7. Documents showing any gain or loss from the sale of personal and/or real property, including capital assets and merchandise.
8. Documents concerning scholarship or fellowship grants, such as:
(a) verification of the grantor, source, and purpose of the grant;
(b) copies of the application for, and approval of, the grant;
(c) a statement of the amount paid, and your duties and obligations under the grant; and
(d) a list of any previous grants.
9. Documents indicating qualification for special tax treaty benefits.
10. Document verifying your date of departure from the United States, such as an airline ticket. 11. Document verifying your U.S. taxpayer identification number (TIN), such as a social security card or an IRS-issued Notice CP 565 showing your ITIN.”
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post IRS Form 1040-C: Departing Tax Return & Certificate appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>Emergency Offshore Tax Services Scam
Beware of Emergency Tax Help: We get it, tax law can be scary. Maybe it is because you received a notice from the IRS, or an IRS intent to issue a federal lien or levy. While tax law can be intimidating, 99% of the time it does not require emergency tax services by firms that will overcharge and underperform.
We recently had a new client tell us they had just finished a free initial consultation and were worried about going to prison. They were told they missed the FBAR, due June 30th, and they were running out of time before they could submit to the VDP voluntary disclosure program (even though they were clearly non-willful) which was 10/15.
Three main problems:
Probably not.
Most of these types of firms have a history of preying on the general fear people have for the unknown.
And, no good decision is ever made in haste.
In reality, unless you have two Special Agents standing at your doorstep with warrants in hand, you do not need to immediately pay some law firm that fed into your natural fear of the IRS during the initial “free” call, and goaded you into representation when something in your gut told you it just did not feel right.
Many times, clients come to us for a second opinion after being told that they were going to prison unless they rushed to representation in offshore tax matters that were not required — and put the client into a worse position than when they started.
Here are 5 Tips.
When a law firm advertises or markets as providing emergency offshore tax services, it already puts the client into a false sense of fear.
This is referred to as fear-mongering or scare-mongering.
If the Attorney feels it is absolutely crucial for you to hire a tax lawyer right now, have them explain exactly why it is necessary, and what there immediate actions will be — along with a written timeline.
Is the Attorney Board-Certified and do they specialize in Offshore Tax Matters.
If the attorney handles all different types of tax law, chances are they do not have the specific knowledge for your particular situation to even determine if “emergency tax services” are needed — and they are rarely, if ever needed.
Especially if the issue involves offshore matters, please be sure to reach out to multiple attorneys before being goaded into representation in a hurry. It seems every general tax practitioner with a handful of cases under their belt is suddenly an expert.
By interviewing multiple attorneys, it will accomplish two things:
When the attorney already knows you want to move as fast as possible, this will turn the initial consultation into nothing more than a sales pitch as opposed to an information session, and an immediate “eating away” of the retainer you just paid.
If a law firm is telling you that you are in a dire tax situation and require emergency tax services, be sure to get the strategy and timelines up-front.
These firms are charging you a premium to handle your tax matter as quickly as possible.
If they are taking the position that the matter is so serious that it needs to be done now, before you have time to really digest the information and speak with other counsel, then be sure you have a step-by-step roadmap of what these additional fees are really buying you.
Oftentimes, the purpose of getting you to quickly sign the retainer is to avoid you speaking with other, more experienced counsel.
Be sure the attorney actually has the experience they claim they do.
That way, they will not be charging you for items such as research and review, which can quickly eat away at your retainer and before you know it, you out of time...before your tax “emergency” is resolved.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post Beware of Emergency Offshore Tax Services Scam appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>IRS Criminal Investigation
IRS Criminal Investigation: When the Internal Revenue Service believes you have committed a tax crime, they may launch a criminal investigation against you. Typically, the IRS Special Agents will be tasked with conducting the investigation into your background, finances, and tax history to assess the damage. In recent years, with the service making foreign accounts compliance a key enforcement priority, taxpayers who have not properly disclosed offshore accounts, assets, investments and income are at a high risk.
Let’s review how the IRS conducts Criminal Investigations.
It is becoming more and more clear that the IRS, Department of Justice and the U.S. Government as a whole have made Federal Tax Crimes involving Tax Evasion and Tax Fraud that involve Foreign Income and Offshore Accounts a key enforcement priority.
Typical IRS Criminal Tax Investigations include:
Here are some of the more common tactics
The IRS has no legitimate reason for speaking with the manager at your bank, unless the IRS is trying to build a case against you.
Oftentimes, when the IRS agent visits your bank manager, it is to begin comprehensive research on issues such as transfers, moving money offshore, and other matters related to your bank account.
They may want to know how often you come to the bank, and how often you request cash as opposed to other transfers.
They may also want to know if there any other non-primary individuals on the account, accessing your information and if there are other accounts that the IRS may not know about yet.
When a person is not cooperating with the IRS, or consistently avoids appearing before the IRS, the IRS can get frustrated. One way the IRS relieves its frustration is by visiting by a person’s residence to try to put pressure on them.
This can be done for two main reasons:
The first reason is to put some pressure on the individual to let them know that the IRS is aware of where person lives and that the situation is not going away so quickly.
Second, is so the IRS can monitor how the person reacts after the IRS appears at their home. For example, as a result of the IRS visiting their home unannounced, if a person under investigation begins making significant transitions or transfers of money from one location or account to another – it may help the IRS pursue a criminal investigation.
This is a little more intense, and is usually not protocol unless a person owns their own business.
Over the years, several of our clients have had visits from the IRS while in the pre-criminal investigation phase that the IRS showed up at their place of business to ask themselves – and other employees – various questions.
Of course, other individuals at the place of employment not required to speak to the IRS if they are not under subpoena or summons, bit sometimes they may know their rights
If you are ever in an audit and the audit ends, but you are unable to obtain a closing letter or any other documentation from the IRS it may be cause for concern. That is because when a civil audit is stopped either abruptly (or with a little more tact), before it seems like the audit is complete, it is because the IRS agent believes there is a criminal violation.
If the agent suspects a criminal violation, they are absolutely prohibited from asking further questions. That is because in a criminal setting, a person has a right against self-incrimination.
A civil audit is not a criminal investigation, and therefore the agent does not have the right to ask criminal type questions.
If the IRS believes the CPA has information regarding a potential criminal tax matter, the IRS will send them a summons and bring their own “court reporter” with them to a question-and-answer session.
While the CPA has the right to counsel, it is important to understand that if the IRS is taking these types of actions against people on your behalf, then chances are the IRS is at least trying to put together all the evidence he can to determine whether there may be a criminal issue at play.
If you have come to the realization that you have undisclosed unreported foreign accounts-either because you acted willfully or non-willfully, there are options available to you to get into compliance.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post IRS Criminal Investigation appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>
Minor Willful Offshore Tax Infraction: Can I Go Streamlined?
Minor Willful Offshore Tax Infractions: One of the biggest problems plaguing offshore tax law in 2020, is that anyone can write anything they want on the internet – and publish it. For the unsuspecting reader (read: you), the misinformation you find online can send you panicking down one rabbit hole and into the next.
Unfortunately, this has become a major issue in the world of IRS offshore voluntary disclosure.
Why?
Because many inexperienced attorneys believe they can somehow take a willful client, put them through the Streamlined Program, and this will miraculously cleanse the client of any international tax non-compliance misdeeds.
A few years back, we learned of a firm that tried this with an unsuspecting individual who had admitted to more experienced lawyers (including our firm) that they were willful, and that individual now lives in constant fear of being outed by the IRS.
When a person is willful, or technically “cannot certify under penalty of perjury they are non-willful,” they no longer qualify for Streamlined Procedures, Reasonable Cause, or Delinquency Procedures.
That is because in order to qualify for any of those programs, a person has to be non-willful.
For example, if a Taxpayer knew they were supposed to report $1,500 of foreign interest income, but willfully failed to do so, they are willful.
The IRS does not parse out willful FBAR vs. willful FATCA vs. willful Tax Returns. Rather, its all mixed into the same pot. If you were willful in one aspect of your tax life, it taints the whole submission.
This is similar to prior OVDP, in which if you had any money in a bad bank, then ALL the unreported assets became subject to the 50% penalty, and not just the money in the bad bank.
In addition, there are no de minimis exceptions.
At Golding & Golding, we have submitted more than 1,000 Streamlined Submissions (not including OVDP, VDP and Reasonable Cause/Delinquency) without a single rejection — but what does that really mean?
Not much of anything, until the statue expires.
Some of these inexperienced offshore disclosure lawyers will bait you in with a “100% success rate.”
The goal of this statement is to lure you into a feeling that you can beat the system by submitting a willful streamlined to the IRS, and avoid an audit.
Why?
Because these attorneys tout that none of their clients have been audited or rejected from the program.
In reality, the “stand-alone” Streamlined Procedures were introduced in July 2014. And, most submissions are subject to the IRC 6501 6-Year Statute of Limitations.
Therefore, a majority of streamlined submissions are still subject to potential audit.
If the IRS audits you and realizes you were willful, but still went streamlined anyway — you can end up facing criminal penalties, just like this guy did.
The reason why this is so upsetting to more experienced counsel, is because these less-experienced attorneys are putting their clients at a major risk, without properly informing their client of the risk.
For example, if a person knows they are willful, and still submit to the streamlined program under penalty of perjury – they have made an intentional misrepresentation to the IRS.
This is tax fraud, and can be criminal.
Once the client realizes the error of their ways, oftentimes the client finds themselves in an even worse position than they were from the start.
Instead, Taxpayers should speak with experienced counsel to properly assess the facts, understand the options available — and develop a legal and ethical strategy to get the U.S. Person into offshore tax compliance.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post Minor Willful Offshore Tax Infraction: Can I Go Streamlined? appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
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International Tax Investigation
International Tax Investigation: When a U.S. person has unreported income or undisclosed foreign accounts, assets or investments, they are at an increased risk of IRS fines and penalties. Over the last 10-15 years, the Internal Revenue Service has made foreign accounts compliance and key enforcement priority. With the introduction of FATCA (Foreign Account Tax Compliance Act) and renewed interest in the FBAR (Foreign Bank and Financial Account Reporting) aka FinCEN Form 114, taxpayers are an easy target. While Taxpayers were previously able to hide money offshore, that is no longer a viable option.
International Criminal Tax Investigations can have very serious consequences, including outstanding taxes, liens, levies, penalties, fines and imprisonment.
We will summarize International Tax Investigation for you.
When a person is initially contacted by the IRS for offshore matters, it is generally in regard to a civil violations. Common issues, include:
Whether the Taxpayer is being investigated under a regular audit scenario and/or is being audited under a more sinister eggshell or reverse eggshell audit, the stakes are high.
If the Internal Revenue Service believes the Taxpayer acted willfully, the penalties can reach upwards of 75% of tax liability and 50% of the maximum balance of unreported accounts, investments or assets, with a minimum of $100,000 annual penalty (adjusted for inflation).
An IRS offshore criminal tax investigation is much more serious.
The taxpayer may be subject to excessive fines and penalties, in addition to an indictment and possible jail or prison sentence.
A criminal tax investigation typically kicks into gear when the individual has been visited by the Special Agents — who represent the criminal faction of the IRS.
Unlike a civil tax audit in which the only issue a taxpayer has to worry about is whether he or she will be assessed any taxes, penalties, and/or interest...a criminal tax investigation can result in money, fines, and imprisonment.
Some of the most common types of tax crimes are as follows:
If you have been contacted by the IRS Special Agents, Department of Justice or District Attorney’s office involving a criminal tax matter, it is important that you do not speak with the investigators and retain an attorney, since anything you say will be used against you!
International Tax Investigations for Offshore Tax Fraud and Evasion is on the rise, especially with issues involving:
When a person has offshore or foreign accounts, the chances of getting into tax and criminal trouble increase exponentially.
Why? Because under new foreign account reporting laws and regulations (FATCA), it is much easier to get caught in the US government’s web, which is designed to catch, investigate and prosecute U.S. Taxpayers (U.S. Citizens, Legal Permanent Residents, Foreign Nationals Subject to U.S. Tax)
Under FATCA (Foreign Account Tax Compliance Act) more than 110 countries and 300,000 Foreign Financial Institutions (FFIs) have agreed to reciprocate financial information of US taxpayers to the United States Government and vice versa by the IRS to foreign countries.
The Foreign Bank List can be found here.
In addition, the United States has already identified upwards of 140+ foreign financial institutions that have been known to assist taxpayers with committing tax fraud. If you happen to bank or maintain accounts with any of these institutions (aka “Bad Banks”) and have unreported accounts, it is in your best interest to contact an experienced offshore tax attorney to assist you with getting into compliance before it is too late.
If you have already been contacted by the Department of Justice, Department of Treasury, or the Internal Revenue Service, it is absolutely crucial that you do not speak with them directly.
Yes. The reason why the US government has placed such a priority on international tax enforcement is due to the billions of dollars of lost taxes the US government misses out on due to international tax fraud and tax evasion.
In fact, the U.S. Government has developed specific programs that are specifically designed to combat offshore tax evasion and tax fraud.
For example, in 2013 the government created the Swiss bank program, which as provided by the DOJ “The Swiss Bank Program, which was announced on August 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States.
Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.
As the policy development and outreach office for TFI, the Office of Terrorist Financing and Financial Crimes (TFFC) works across all elements of the national security community – including the law enforcement, regulatory, policy, diplomatic and intelligence communities – and with the private sector and foreign governments to identify and address the threats presented by all forms of illicit finance to the international financial system.
TFFC advances this mission by developing initiatives and strategies to deploy the full range of financial authorities to combat money laundering, terrorist financing, WMD proliferation, and other criminal and illicit activities both at home and abroad. These include not only systemic initiatives to enhance the transparency of the international financial system, but also threat-specific strategies and initiatives to apply and implement targeted financial measures to the full range of national security threats.
Primary examples of these roles in advancing this mission is TFFC’s leadership of the U.S. Government delegation to the Financial Action Task Force, which has developed leading global standards for combating money laundering and terrorist financing and its role in specific efforts to counter threats like proliferation, terrorism and the deceptive financial practices of Iran.
The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. OFAC acts under Presidential national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze assets under US jurisdiction.
Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments.
This statute establishes FinCEN as a bureau within the Treasury Department and describes FinCEN’s duties and powers to include:
**Authorities Delegated to FinCEN pursuant to TREASURY ORDER 180-01
This Treasury Order describes FinCEN’s responsibilities to implement, administer, and enforce compliance with the authorities contained in what is commonly known as the “Bank Secrecy Act.”
The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:
Failure to File
If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.
The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
Failure to Pay
f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.
However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
Civil Tax Fraud
If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
A Penalty for failing to file FBARs
The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
A Penalty for failing to file Form 8938
The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 3520
Penalties for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
A Penalty for failing to file Form 3520-A
The failure to file each one of these information returns or for filing an incomplete return, is a penalty the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
A Penalty for failing to file Form 5471
The penalty starts at $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 926
An unfiled form may lead to a penalty that is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
A Penalty for failing to file Form 8865
Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
Fraud penalties imposed under IRC §§ 6651(f) or 6663
Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)
Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)
If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
An Accuracy-Related Penalty on underpayments imposed under IRC § 6662
Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty
Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)
Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).
A person convicted of tax evasion
Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000. A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000. A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post International Tax Investigation & the IRS appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
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What is Smurfing & Structuring?
Smurfing and Structuring: Financial Crimes comes in all shapes and sizes. When it comes to banking violations, it may include domestic issues, international issues or both. Oftentimes, financial crimes will overlap.
Two of most common types of financial crimes are Smurfing and Structuring.
While domestic crimes are bad, when these crimes involves offshore and international tax related matters, the penalties can be outrageous.
And, the IRS has significantly increased enforcement of foreign accounts compliance and offshore reporting.
A common question we receive is:
“What’s the difference between Smurfing and Structuring?”
We will summarize the basics of Smurfing and Structuring.
Structuring does not have to include illegally sourced money or money laundering – it can be legal money, and it can be as simple as you do not want the amount or frequencies of your deposits to be scrutinized by the bank....so you structure the deposits accordingly.
In other words, Structuring is the idea of structuring your deposits, withdrawals, etc. to avoid detection by the Bank.
Typically, this means avoiding depositing more than $10,000 of cash at any one-time — to avoid a Currency Transaction Report (CTR) from being issued, and/or to avoid a potential Suspicious Activity Report (SAR) from being issued.
For reference, bank regulations require financial institutions to file reports when certain transactions occur in either high dollar amounts, or in high frequency. These reports are not limited to the United States.
For example, you have $30,000. Instead of depositing it into your account, you intentionally (and for the purpose of avoiding detection/reporting by the bank) spread out the deposits over several days.
Structuring is a global issue not limited just to the U.S.
Many countries have similar rules in place. The reason being, is that no financial institution wants to learn that they were a conduit or catalyst for any sort of fraud, money-laundering, terrorism, etc.– like a game of Hot Potato.
Smurfing Financial Deposits: The smurfing financial deposits crime is complicated. If you were like me, and your childhood included running downstairs on Saturday mornings to catch new episodes of the Smurfs — smurfing is different.
The Smurfs were fun (and blue). Smurfing bank account deposits is criminal...and may leave you in jail, with the blues.
Since smurfing will oftentimes include foreign or offshore bank deposits, individuals have to be even more careful.
What makes smurfing financial deposits so complicated, is that in many situations, the same behavior used to smurf accounts is considered just making a legal bank deposits.
For example, if a person wanted to split their $24,000 deposit into three (3) $8,000 deposits because they own three (3) convenience stores throughout the city, and want to have an account near each one of their stores — this is not illegal.
It is when a person smurfs account deposits to avoid detection and bank reporting (CTR and SAR) that it becomes more complicated.
Gargamel has about $500,000 of cash that he received in legally sourced money. He would like to deposit into different banks to avoid reporting. (aka Structuring)
Gargamel is a U.S. person and doesn’t want to have to report the income on his return, even though the income is all legally sourced.
He does his research and hatches a plan. And, to carry out his plan, he decides he needs some help... and who better to go smurfing than the smurfs, right?
Therefore, Gargamel orders Papa Smurf, Clumsy Smurf, Grouchy Smurf, Greedy Smurf, Brainy Smurf, and (of course, smurfette) to each deposit various amounts of small transactions into numerous different banks to avoid detection.
The idea is that, if for example, Brainy Smurf takes $70,000 and split it into 14, $5,000 transactions that he makes at 14 different banks across smurf village, no one will be the wiser, since it is below the CTR threshold and nothing suspicious about depositing $5,000 into a bank.
If instead, Lazy Smurf deposited all of the $70,000 cash into one account, when there is no proof that he has his own business or otherwise generates that type of money – it could lead to further questioning from the bank, as well as a potential CTR report or an SAR report.
Beyond U.S. structuring/smurfing, once a person is doing these types of transactions overseas and possibly not filing necessary informational returns, FBARs, Form 8938, etc. they might find themselves in some serious trouble.
Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post What is Smurfing & Structuring? appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>5 Myths About How Voluntary Disclosure Works
5 Myths About Offshore Voluntary Disclosure: There is a lot of bad information on the internet when it comes voluntary disclosure and the IRS. Many times, when clients contact us after conducting their research on Google, they are scared. This is compounded by the fact that the first few “free” initial consultations they have, tend to be aggressive and little more than a fear-momgering session.
The Attorney convinces the client to hurry up and act now, cancel all future consultations, and do not speak with any other attorneys, right?
The Attorney persists — if the client does not act immediately, they risk imminent jail, prison and millions of dollars in fines and penalties.
While OVDP ended in 2018, the IRS expanded the VDP program on matters involving offshore compliance, and for many taxpayers, the program is very beneficial.
A client will contact us after speaking with a scaremongering attorney in a free consultation.
Granted, not all free consultations are bad, but many tend to be a form of scaremongering.
The Attorney tells the client to cancel any future scheduled calls with other Attorneys, and act now before the IRS comes and snatches them away forever.
While voluntary disclosure can be time-sensitive, if you feel like you are being rushed into making a decision, take a step back and reflect.
It may help to speak with other counsel first.
You are not entering a plea deal or any other criminal agreement with the IRS.
By entering VDP, you are essentially acknowledging that you cannot certify under penalty of perjury that you are non-willful, and you are seeking to avoid a criminal investigation.
The IRS may be investigating you, but probably not.
The purpose of VDP is to get in and done before the IRS commences an investigation of you.
We all have a little bit of Dale Gribble “conspiracy theorist” in us. But, just because you recognize the same person at the grocery store two-days in a row does not mean the fuzz is on your tail.
It can just be they also have to run to the store to get more juice boxes for the kids – take a deep breath.
The IRS revenue agent or examiner does not arrest you.
Most agents have limited authority to act beyond reviewing your tax return.
If you were under audit, and the IRS agent believed you were willful, the IRS agent will refer the matter to the Supervisor, who may then refer to the Special Agents to consider a criminal investigation.
Now, if you are already on the run and the IRS Agent recognizes you from TV, that is a different story.
Some attorneys claim they specialize in Voluntary Disclosure, but limit their representation to Streamlined Disclosures and Delinquency Procedures.
Why?
Because they do not really specialize in this area of law.
They are general tax practitioners want to make a quick buck off you and steer you into Streamlined, even when you were willful. They think Streamlined is easy (it isn’t) and they add it onto the 10 other areas of tax law.
VDP is a complex specialty area of tax law, and there are only a few experienced (usually Board-Certified Tax Law Specialist Attorneys) who specialize exclusively in this area of law.
For those clients who do not qualify for Streamlined, VDP can be a great program.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post 5 Myths About How Voluntary Disclosure Works appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>Court Affirms Incomplete Streamlined Procedure Willful FBAR Penalty
Incomplete Streamlined Procedure Willful FBAR Penalty: In the recent case of U.S. v Margaret Jones, the court affirmed an IRS Willful FBAR Penalty against an elderly widow, for a seemingly incomplete Streamlined Disclosure. The catalyst for claiming that the Taxpayer’s submission was incomplete was because the applicant did not include a 5% streamlined penalty for her deceased husband. Whether or not that would make the submission incomplete per se is unclear.
It also appears an inexperienced IRS Agent went rogue against the elderly widow for reasons unknown.
For reference, this was the Agent’s “first” streamlined case, based on having three days of classroom training.
How neither the IRS nor the Court showed sympathy for a 91-year old elderly widow is completely dumbfounding.
There appears to have been several unfortunate missteps along the way, most having nothing to do with the Taxpayer’s submission.
The catalyst for the audit stemmed from Taxpayer’s failure to include the decedent spouse as part of the Title 26 Miscellaneous Offshore Penalty.
Like many IRS personnel, the Agent was a novice when it came to auditing Streamlined Disclosures.
This case proves that just because a person worked at the IRS in a non-offshore disclosure role does not mean they are qualified to handle a streamlined case.
In this case, the IRS Agent assigned to Mrs. Jones’s case had Three (3) days of “classroom training” for streamlined cases under her belt.
That’s right — count them....three days in a classroom setting and not a single streamlined disclosure under her belt.
To be more specific, the IRS Assigned a Streamlined Submission involving several million dollars and a widow to an agent with exactly ZERO experience in streamlined submissions.
As provided by the Court:
“The IRS’s income tax and FBAR examination was conducted by IRS Agent Keli Kim (formerly Keli Stelmar). Id. at ¶ 33. Ms. Kim joined the IRS in 2010 and began her career with the IRS auditing individual income tax returns, Form 1040. Id. at ¶ 34.
When Ms. Kim started working on audits related to FBARs and foreign accounts, she only received three days of classroom training related to FBARs, foreign entities, foreign issues and international issues. Id. at ¶ 35.
To date, Ms. Kim has only handled three streamlined submission cases—the first being the Joneses’ case. Id. at ¶ 36″
Here is a brief summary of the different roles IRS personnel play.
When a person passes away, the IRS can still go after the estate, administrators, etc.
In this case, the decedent was Mrs. Jones husband, Mr. Jones (aka Decedent)
Decedent was in his early 90’s when he passed. He had a CPA who apparently did not know about the FBARs.
Upon learning of the previous FBAR non-compliance, his widow, Mrs. Jones (who knew nothing about the accounts) submitted a Streamlined Disclosure submission, but she did not include her decedent husband’s accounts as part of the submission.
Her position was reasonable: How can he sign the submission if he is deceased —
Makes sense, right?
But, by filing a single-spouse Streamlined — when as in this case, the decedent had accounts in the millions of dollars — Taxpayer was inadvertently setting herself up for an increased chance of audit.
The problem with this strategy is that death does not mean the IRS loses all opportunity to go after FBAR Penalties.
Since Taxpayer relied on a CPA, she may have had a better shot had she’d submitted a dual-spouse Reasonable Cause submission.
While the courts can reject Reasonable Cause, oftentimes (if submitted properly) the IRS will accept it.
Even in the recent case of U.S. v. Agrawal, where the court rejected Taxpayer’s Reasonable Cause, it was due to Taxpayer having bad facts and being self-represented.
And, in that case the IRS still limited the penalties to non-willful penalties.
Just because someone passes away does not mean the estate is absolved from a prior year audit.
Here, Petitioner did not include her deceased husband’s accounts, and that seems to have been what sparked the Audit.
As provided by the Court:
“The IRS began its investigation into the Joneses on the basis that Mrs. Jones’ Streamlined Submission did not list, and did not pay a 5% penalty on Mr. Jones’ foreign accounts. Id. at ¶ 37.
Ms. Kim disagreed with Mrs. Jones’ decision to not include Mr. Jones’ accounts on the Streamlined Submission and felt that she should have called the IRS’s 1-800 number. Id. at ¶ 38. There was, however, no clear rule as to the process for a streamlined submission for a deceased spouse.
An internal discussion at the IRS recognized that “[t]his is a unique SL case,” and the Frequently Asked Questions do not “really seem to address not singing [sic] the joint certification.” Id. at ¶ 39. Different IRS employees shared “[their] impressions” and agreed that not submitting a certification as to the Jeffrey Accounts is a “benign foot fault” and the IRS “will allow the surviving taxpayer spouse . . . to perfect her [non-willful] certification.” Id.
Other employees told Ms. Kim that Mrs. Jones could amend her Streamlined Submission to include Mr. Jones’ accounts and pay the 5% penalty. Id. at ¶ 40.”
It does not appear the new Agent sufficiently followed-up with the Taxpayer to re-iterate that she should re-submit the 14654. Even other agents agreed she should have the opportunity to amend the 14654 SDOP submission.
Taxpayer CLEARLY should have had a chance to fix the issue.
She is a 91-year old widow who affirmed under penalty of perjury she did not know about the accounts.
It would appear the IRS Agent may have gone rogue against her for one reason or another, and was penalizing her without providing her a full chance to revise the submission.
Golding & Golding have submitted close to, if not more than 1000 Streamlined Submissions.
The 1-800-number was never effective in eliciting specific advice for a case. If you had a specific question, you are “recommended” to submit a PLR or similar.
This Taxpayer clearly had a unique situation and the 1-800 number would not have garnered specific, written advice she could rely upon.
Mrs. Jones is 91 years old. She lost her husband of nearly 60-years, and the Streamlined program had only been around for less than 1-year.
Dialing the 1-800 number for specific advice on her situation would have gotten her nowhere.
As provided by the Court:
The IRS’s findings in support of its willfulness determination are set forth in the July 26, 2018 30-Day Letter sent to Mr. Jones (his Estate) and to Mrs. Jones on October 22, 2018. Id. at ¶ 76.
These letters attached an Explanation of Items (“Revenue Agent Report” or “RAR”). Id.
Each IRS Agent Determination constitutes a complete exposition of all the underlying reasons for a willfulness determination and for the amount of the penalty assessed. Id. at ¶ 77. The RAR concluded that Mr. Jones was “[a]t best . . . willfully blind regarding his FBAR filing requirements.”
As a result, the IRS assessed willful penalties.
Possibly.
It appears that the audit was sparked by the non-reporting of the husband’s penalty.
Had Mrs. Jones submitted a penalty for the Husband’s Accounts or possibly sought a Reasonable Cause submission, an audit would have been presumably been avoided as well as the willfulness penalties that followed.
It is unclear if Mr. Jones received proper legal advice from counsel to weight the pros and cons of disputing willfulness.
The Case is still pending.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post New Case Ruling: Incomplete Streamlined Procedure & Willful FBAR appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>Form 3520 Foreign Inheritance
Form 3520 Inheritance: The IRS Form 3520 is used to report certain foreign transactions involving gifts and trusts. So, why are Foreign Inheritances included in the filing requirements? That is because technically an inheritance is a gift. Despite the fact that the IRS has promulgated many, many laws detailing the difference between a gift and inheritance (for example, “Step-Up Basis”), for Form 3520, they all mush together. Therefore, if you are a U.S. person who receives a gift or inheritance from a Foreign Person, you must report the inheritance on Form 3520.
If you do not report a foreign inheritance timely or accurately on Form 3520, you may be subject to fines and penalties.
As provided by the IRS:
“Section 6039F.
In the case of a failure to timely report foreign gifts described in section 6039F, the IRS will determine the income tax consequences of the receipt of such gift, and a penalty equal to 5% of the amount of such foreign gifts applies for each month for which the failure to report continues (not to exceed a total of 25%).
No penalty will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect. See section 6039F for additional information.”
If you receive a CP15 Notice for a Foreign Gift or Inheritance, you only have a limited to respond.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post Form 3520 Foreign Inheritance Filing appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
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Expatriation for Citizens and Long-Term Residents
What is Expatriation for Citizen & Long-Term Residents? Expatriation is a simple, but complex undertaking. Oftentimes, when discussing the concept of expatriation and the IRS, there are very specific issues which need to be addressed, such as Long-Term Resident status, Covered Expatriate status, and Mark-to-Market elections. For purposes of this summary, we will introduce the basics of the process of expatriation, and which U.S. Citizens and Legal Permanent Residents who are “long-term residents” may be subject to exit tax.
Expatriation is process of giving up or “relinquishing” U.S. status.
Expatriation impacts U.S. Citizens and Legal Permanent Residents, but not visa holders directly.
For example, when a person is a Visa Holder and subject to U.S. tax and reporting simply because they met the substantial presence test, they can avoid U.S. status simply by not meeting the Substantial Presence Test.
But, when a person has a more “permanent” U.S. status, such as a U.S. Citizens and certain Legal Permanent Residents, when they want to give-up their U.S. status, it is a form of expatriation that has certain requirements for completion.
Generally, expatriation is limited to U.S. Citizens and Legal Permanent Residents.
When a person is a U.S. citizen or Legal Permanent Resident, they should set their plan of expatriation in motion before they actually expatriate.
That is because once a person expatriates, the expatriating event is complete, and the covered expatriate analysis kicks in — without the opportunity to perform any “exit tax planning.”
There are various ways to relinquish U.S. Status.
The two simplest ways is for a Green Card Holder to file a Form I-407 (Voluntary Abandonment) or a U.S. Citizen to relinquish their Citizenship at the local consulate of the country they reside.
Once the process is complete, they will receive of certificate of loss of nationality.
*There are tax traps for LTRs who file 8833 after being an LPR for eight years (see below)
There are really only two main categories of U.S. individuals who may even qualify as a Covered Expatriate.
Either a U.S. Citizen, or Legal Permanent Resident (LPR) who is a Long-Term Resident (LTR). An LTR is someone who has been an LPR for eight of the last 15-years.
When a Person is a U.S. Citizen or Long-Term Resident, they have to complete the Covered Expatriate analysis.
There are (3) three-ways to become a covered expatriate:
Not always.
Presuming that a person meets the Covered Expatriate Test, they then have to prepare the Form 8854 balance sheet involving the Mark-to-Market sale on unrealized gain.
For example, if Daniel wants to expatriate and is a covered expatriate, he must determine the basis of his properties and assets, along with the market values, and treat them as sold the day before expatriation.
There are many complex rules to this analysis.
For example, some items may be deemed distributed (ineligible deferred compensation plans), some items may be deferred (eligible deferred compensation plans) and other items may have be excluded.
Moreover, the basis on some property held before the person became a U.S. Person may increase (step-up rules), and once the analysis is complete, an exclusion amount is applied to offset potential tax liability.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post What is Expatriation for Citizens & Long-Term Residents? appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>IRS Special Agents and Offshore Non-Compliance
Special Agents, Offshore Tax Crime and IRS Investigations: When the IRS Special Agents visit you, they mean business. Unlike other general positions like an examiner or agent (where not tax or legal experience is required) — IRS Special Agents are specially trained. When the IRS believes someone may have committed a tax crime, the matter is referred to the IRS Special Agents for a quasi-criminal investigation. If the IRS agents show up at your door, you should never speak to them unless you are accompanies by counsel — no matter how slick you think you are.
Moreover, with the IRS aggressively enforcing foreign accounts compliance — coupled by the sheer magnitude of offshore penalties — it is important to avoid self-incrimination.
Unfortunately, when the IRS Special Agents approach you for the first time, it will be unexpected. It also signifies that things have just gone from bad to worse.
Maybe you recently finished an IRS audit exam and could not get the Agents on the telephone following the audit. Or, maybe your ex-wife or former business partner sold you out to the IRS – either way, Special Agents means “trouble.”
Usually, when the IRS agents first approach you, it will be with the hopes of catching you off guard. They will try to catch you leaving the health club, Rotary Club meeting, or just finishing up a drink with a buddy — when you are approached b two people in suits waiting for you.
The goal of the Special Agents is get you to talk.
Your goal should be little more than getting the words, ” I want to call my attorney” out before saying anything else that could be considered incriminating and used against you later down the line in a possible indictment or grand jury investigation.
The purpose of the IRS special agents is to launch the criminal investigations involving potential tax fraud, tax evasion, money laundering, or other types of tax crimes.
Depending on the information the special agents gather from you, it will determine whether they decide to either close the case, or refer the case to the Department of Justice for prosecution.
Usually, if there is any evidence that could be taken as you committing a form of tax fraud or evasion, your case will be referred for criminal prosecution.
Many times, when the special agents approach, they will play the “good cop, bad cop” roles. The purpose of this is to try to make you feel comfortable enough to begin talking to them – without the benefit of having an attorney present.
CPAs and Accountants do not have the same privileges as an attorney, and there is no attorney-client privilege.
There are many different ways in which the Internal Revenue Service may get wind of your tax situation.
The following example is the primary way in which the IRS determines whether it is going to bring criminal charges by way of an IRS Special Agent investigation.
David receives a notice of audit from the Internal Revenue Service.
The purpose of the audit is for various different deductions they believe were improper as well as possible unreported income.
David is a smart person, but almost too smart for his own good. He decides he’s going to handle the audit by himself without the help of an attorney.
At the audit, the IRS revenue agent asks David some general questions before delving deeper into his financial affairs. It turns out that David filed a schedule C and took a whole host of business deductions. He also had multiple foreign accounts and investments, including a foreign life insurance policy under his brother’s name and a few Swiss Numbered Accounts.
When pressed, David responded that the did not have any foreign Accounts.
When pressed for further information at the audit it turns out that David acknowledged that some of the deductions might be enhanced – but unfortunately, David also confirmed that he has additional income he did not report because “he didn’t think he’d make that much money and since it was only around $20,000 or $30,000 he didn’t feel the need to report it.”
Probably within the next 15 minutes or so the auditor ends the audit. David, being the cocksure individual that he is assumes everything is resolved and the audit is complete. Weeks or even months past pass by and David has not received a notice of examination changes.
It is not until a few months later when David is leaving the gym that he’s approached by two individuals in dark suits who introduce themselves as special agents. It turns out that after the auditor went silent, he had referred the matter to a supervisor who after reviewing additional tax returns determined that there was a pattern and practice of David not reporting all of his income. As a result, David is now under criminal investigation by the IRS Special Agents (Criminal Investigation department of the IRS).
This is one of the main ways in which the IRS initiates a criminal investigation – resulting from what appeared to be a harmless audit. There are other ways of course the IRS to learn of this information – a jilted lover, a former business partner, a competitor, or just someone who doesn’t like you very much and has information to bring to the Internal Revenue Service (which he or she will usually leverage to save their own hide on a different matter)
If you are ever approached by Special Agent, no matter how smart you think you are or sure you are that you’ve done nothing wrong – you must fight the urge to say anything to the special agent. The special agents represent the criminal investigation unit of the Internal Revenue Service. Their purpose is to conduct an investigation of you to determine whether they should refer the matter for criminal charges.
Since technically you are not under arrest or being interrogated, you are not entitled to an attorney. Moreover it is not past the special agents to conveniently inform you that you should still probably speak to an attorney first. In other words, the special agents are not going to do you a courtesy and tell you to not respond to their questions – it is not equivalent to being under arrest or custody/confinement by police and thus you will normally not be read your Miranda right.
No matter what the special agents tell you, let me make this perfectly clear: the IRS agents do not go around investigating everybody. They only investigate people they believe are guilty, which is why if you have been contacted by the IRS Special Agents, you must contact an attorney.
They shouldn’t. First, there is no attorney client privilege with an enrolled agent or a CPA. There is a limited tax preparer privilege but that does not extend in any way shape or form to criminal investigation. What that means to you is that if the IRS wants to question your tax preparer, enrolled agent, or CPA (unless there also an attorney) in a criminal investigation, your representative will be forced to spill the beans on you.
If you retain an attorney, then not only do you receive the attorney-client privilege, but the attorney can retain other financial professionals such as accountants, CPAs, enrolled agents, forensic accountants etc. under the attorneys umbrella and those individuals will also (for the most part) be covered under the attorney-client privilege.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
The post Special Agents, Offshore Tax Crimes & IRS Investigations appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
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Abandonment of Green Card, Expatriation and Exit Tax
Green Card Abandonment: For many Legal Permanent Residents, once they learn about the IRS tax liabilities for being a Green Card Holder, along with the potential future exit tax, being a U.S. person loses its luster. As a result, the green card holder wants to abandon their green card status and give up their U.S. Person status.
Whether or not the person resides in the United States or abroad (even if living overseas with no intention of returning to the United States), giving up a green card can have a significant impact on a person’s tax liability.
Before going to the consulate, and/or filing a Form I-407, keep the following tips in mind:
Just because a person let’s their green card expire, does not mean that they have proactively expatriated for US tax purposes.
Stated another way, in order to give up U.S. person tax status, a person must file a form I-407, or submit to an alternative abandonment process.
If the US person let’s their green card expire, while it may impact their ability to remain in the United States legally – it does not relinquish their US tax status.
A common misconception is that just because a person resides outside the United States and their green card has expired, that this is a form of expatriation.
It is not, and until a voluntary abandonment takes place, the person is still subject to US tax on their worldwide income and foreign asset reporting.
The tax code does not require a U.S. person Green Card Holder to be a permanent resident for eight full years.
Rather, the way the code is written presumes that as long as the person has had their permanent resident status in eight of the last 15 years (not for 8 of the last 15 years) they are considered to be a long-term resident and possibly a covered exposure.
Therefore, it Is important to properly plan before you reach your 8th year.
Form 8833 is used to take a tax treaty position.
If a person follows a form 8833 to take a tax treaty position to be treated as a foreign resident, it may be considered an act of expatriation.
Thus, if a permanent resident was unaware of the fact that they were considered a Long-Term Resident, filing Form 8833 may be considered an act of expatriation.
But, since it was done inadvertently, the person would not have had an opportunity to properly plan.
Therefore, be sure to speak with an experienced offshore attorney before taking an 8833 position if you are unsure of your Long-Term Resident status.
In order to not be a covered expatriate, it is important that you are in compliance for the last five years with all of your tax filings.
Even if you do not meet the net worth or net income tax liability test, you will still be considered a covered expatriate if you cannot show that you’re five years compliant with your previous tax filings.
It is important to be in compliance before filing form 8854.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post Abandonment of Green Card, Expatriation & Exit Tax appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
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FBAR Quiet Disclosure
FBAR Quiet Disclosure: An FBAR quiet disclosure puts U.S. taxpayers at serious risk. The FBAR is a FinCEN form (114) that is used by U.S. persons who have foreign accounts, assets, or investments — and meet the threshold requirements for filing the form.
When a person has not filed the form, there are offshore disclosure procedures in place to assist with filing.
If a person opts for a Quiet Disclosure in lieu of voluntary disclosure (tax amnesty) the person files the current year FBAR (usually along with previously unfiled FBAR forms) without filing under one of the proper amnesty programs:
By making a Quiet Disclosure of previously unfiled FBAR forms, you are taking a major risk.
The FBAR form is a deceptively dangerous offshore reporting form, due to the sheer magnitude of the penalties involved for late, incomplete or unfiled returns.
Making matters worse are the globs of bad information you will find online about offshore account penalties.
As you get lost in one rabbit hole after the next, you start to lose your nerve before realizing that most of the bad information is pereptuated by fear-mongers and inexperienced counsel trying to scare you into representation.
There are many reasons why it is never good idea to make an FBAR Quiet Disclosure; here are 5 good reasons not to
You May Not Even Need an FBAR Quiet Disclosure to Avoid IRS Penalties:
Here’s an example: Felicia is from Spain. She has foreign accounts that are worth $1 million. She never reported them because she never knew she had to report them.
Although she lived in the United States for many years, in 2017 she traveled back to Spain to be with her mother, and spent 350-days in Spain.
Felicia may qualify for the Streamlined Foreign Offshore Procedures (see below), in which she can legally fix her prior mistakes — and all penalties or waived.
Once You Make an FBAR Quiet Disclosure, You Are Now FBAR Willful
FBAR Willful penalties are bad. The floor penalty (lowest that it goes) absent very mitigating circumstances, is $100,000 per year.
If you were non-willful like Felicia above, but then went ahead and knowingly filed an FBAR Quiet disclosure, you have now taken a benign situation, and potentially turned it into a willful or even criminal situation.
Willfulness in the civil FBAR penalty arena does not mean the taxpayer acted with intent.
Two common situations with reduced willfulness
You May be Criminally Investigated
The Internal Revenue Service created various programs to assist people who are out of FBAR compliance. This includes people who were willful.
In other words, even if you knew you were supposed to file but didn’t, there are legal means for you to get into compliance. But, if you sidestep these responsibilities and the IRS finds your Quiet Disclosure, they have let it be known that they will pounce on your finances.
You May Lose Immigration Status
This is not common, but something to consider: if you were non-willful, there is almost no chance of any major catastrophe with your status. Under the current administration it is probably a bit more tense than it would otherwise be, but still...losing immigration status is not common.
On the flip-side, if you knowingly commit fraud by submitting an FBAR quiet disclosure, you maybe setting yourself up for more serious complications when it comes time to renew or change your status.
You are Better off with Legal Offshore Tax Amnesty
At Golding and Golding, we are 100% dedicated to getting you safely FBAR compliant. There is no other firm on the planet that is more qualified to assist you.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post FBAR Quiet Disclosure appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>Immigration Tax Lawyers
Immigration Tax Lawyers: When foreigners become U.S. Persons for tax purposes, the submitting of tax returns, FBAR, FATCA, and other international information returns can become very complicated. While the tax rules are always changing, the IRS has honed in on foreign accounts compliance as a key enforcement priority.
This can be even more confusing for visa holders who meet the substantial presence test, and legal permanent residents.
Our International Tax Lawyers develop tax strategies to reduce U.S. Taxes for Non-Citizens & Residents with IRS tax & reporting filing requirements, who are out-of-compliance for prior years.
That depends on your tax situation, but some of the more common questions we receive involving Immigration and Taxes, include:
If a person is considered a U.S. Person (U.S. Citizen, Legal Permanent Resident or Foreign National/Visa Holder who meets the Substantial Presence Test), they report and pay tax on their worldwide income.
If the individual already paid tax overseas, they still include the income on their U.S. Return, but may qualify for a Foreign Tax Credit.
The Foreign Reporting aspects is a bit more complicated.
There are many different types of accounts, income, assets, and investments that may or may not need to be reported, on many different types of forms, such as:
It will depend on the value of the assets, ownership interest, and whether the reporting may be exempted, excluded or limited by an IRS rule.
The failure to properly plan for tax related matters involving international accounts, foreign accounts, foreign income and foreign assets can have a severe impact on a person attempting to naturalize or seek legal permanent residency.
In fact, the failure to properly comply with US tax law is one of the biggest barriers for foreign national seeking to enter into the United States and/or obtain green card/legal permanent residency or naturalization.
The following is a brief case analysis of an individual who did not properly comply with tax law as well as a summary of the basic requirements:
Manuel relocated to the United States on a work-visa, and then became a Legal Permanent Resident.
He has been residing in Southern California and successfully owning and operating a small business.
Since Manuel was not yet able to bring his family over from the Philippines, he was maintaining accounts and other information in the Philippines so that he could provide money for his family to live while he was preparing for them to come to the United States.
Manuel had reached the point where he was getting ready to apply for naturalization, in which he must be able to show he has filed all the necessary tax returns and in compliance with US tax law.
When Manuel applied for naturalization, he identified that he had properly complied with all US tax laws.
Unfortunately, during the naturalization process Manuel was audited by the Internal Revenue Service.
This is not a big deal, since small-business owners get audited all the time and as long as Manuel could show that he properly complied with US tax law there would be no issue.
When Manuel was being audited, the IRS agent learned that not only had Manuel had Manuel not been properly reporting all of his US taxes but he failed to comply with necessary international tax law procedures as well.
Specifically, Manuel failed to identify and report his foreign bank accounts as well as the foreign interest he was earning on his foreign accounts and the sales of certain stocks that he had overseas.
As a result, Manuel’s application for naturalization was rejected.
The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:
Failure to File
If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.
The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
Failure to Pay
f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.
However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
Civil Tax Fraud
If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
A Penalty for failing to file FBARs
The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
A Penalty for failing to file Form 8938
The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 3520
Penalties for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
A Penalty for failing to file Form 3520-A
The failure to file each one of these information returns or for filing an incomplete return, is a penalty the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
A Penalty for failing to file Form 5471
The penalty starts at $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 926
An unfiled form may lead to a penalty that is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
A Penalty for failing to file Form 8865
Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
Fraud penalties imposed under IRC §§ 6651(f) or 6663
Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)
Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)
If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
An Accuracy-Related Penalty on underpayments imposed under IRC § 6662
Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty
Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)
Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).
A person convicted of tax evasion
Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000. A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000. A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post Immigration Tax Lawyers For Prior Year Non-Compliance appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>IRC 965 International Compliance Campaign
IRC 965 International Compliance Campaign: Each year, the IRS introduces several new international enforcement campaigns. The purpose of these campaigns is to put Taxpayers on notice of certain tax issues of which the Internal Revenue Service will prioritize when it comes to enforcement. Back on July 6, 2020, the IRS introduced a new IRC 965 International Compliance Campaign.
IRC 965 is the Treatment of deferred foreign income upon transition to participation exemption system of taxation.
As provided by the Internal Revenue Code:
(a) Treatment of deferred foreign income as subpart F incomeIn the case of the last taxable year of a deferred foreign income corporation which begins before January 1, 2018, the subpart F income of such foreign corporation (as otherwise determined for such taxable year under section 952) shall be increased by the greater of—
(1) the accumulated post-1986 deferred foreign income of such corporation determined as of November 2, 2017, or
(2) the accumulated post-1986 deferred foreign income of such corporation determined as of December 31, 2017.
Reduction in amounts included in gross income of United States shareholders of specified foreign corporations with deficits in earnings and profits
(1)In general In the case of a taxpayer which is a United States shareholder with respect to at least one deferred foreign income corporation and at least one E&P deficit foreign corporation, the amount which would (but for this subsection) be taken into account under section 951(a)
(1) by reason of subsection
(a) as such United States shareholder’s pro rata share of the subpart F income of each deferred foreign income corporation shall be reduced by the amount of such United States shareholder’s aggregate foreign E&P deficit which is allocated under paragraph (2) to such deferred foreign income corporation.
(2) Allocation of aggregate foreign E&P deficitThe aggregate foreign E&P deficit of any United States shareholder shall be allocated among the deferred foreign income corporations of such United States shareholder in an amount which bears the same proportion to such aggregate as—
(A) such United States shareholder’s pro rata share of the accumulated post-1986 deferred foreign income of each such deferred foreign income corporation, bears to
(B) the aggregate of such United States shareholder’s pro rata share of the accumulated post-1986 deferred foreign income of all deferred foreign income corporations of such United States shareholder.
IRC 965 was developed in accordance with the significantly reduced corporate tax rate. Back when the TCJA was introduced, 965 was designed to ensure that certain foreign corporations with U.S. shareholders paid a one-time tax for money that was held or retained overseas — and not previously taxed.
Many shareholders have not paid this tax — simply because they never heard of it. Therefore, the IRS introduced this new international tax compliance group.
As provided by the IRS:
July 6, 2020
The campaign described below was identified through LB&I data analysis and suggestions from IRS employees. LB&I’s goal is to improve return selection, identify issues representing a risk of non-compliance and make the greatest use of limited resources.
The new campaign is:
Lead Executive: Deborah Palacheck, Director, Withholding and International Individual Compliance
Campaign Point of Contact: Ursula Gee, Withholding and International Individual Compliance
“Pursuant to the changes to IRC §965 under the Tax Cuts and Jobs Act, U.S. shareholders, including individuals, that directly or indirectly own at least 10% of the stock of a specified foreign corporation (SFC) are required to include in gross income their share of the SFC’s accumulated post-1986 deferred foreign income for the last taxable year of the SFC beginning before January 1, 2018, and report this amount on their returns for the taxable year in which or with which their SFC’s taxable year ends (generally, 2017 and/or 2018). The Internal Revenue Service will address noncompliance through soft letters and examinations.”
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post IRC 965 New International Compliance Campaign appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>Offshore Bank Accounts, Divorce & the IRS
Offshore Bank Accounts & Divorce: Many years ago while I was in Law School (which seems like forever-ago), I clerked for a former Chief Judge for Virginia State. He was an incredible attorney, and he taught me one very important tool for the effective practice of law.
It’s always ready, aim, fire — not ready, fire aim.
More often than not, hot-headed attorneys are all too quick to get aggressive — whether it is with opposing counsel or competitors — and miscalculate the situation to their (or their client’s) detriment.
This is never more true than in situations involving the IRS, Offshore Accounts and Divorce.
A married couple with a combined net worth of $5M+ are in the middle of divorce. The wife recently discovered that the Husband has offshore accounts which are held jointly with the woman he is having an affair with.
The wife is understandably pissed-off, and wants revenge.
The first question is: What can the wife do about this newly discovered information?
Of course, she wants to blow the whistle, but she should also think about the end-game and how to make the information as profitable as possible, right?
This wealthy married couple (Husband and Wife for the sake of this example) have grown apart and no longer enjoy each other’s company. They divorce and during the divorce, Wife uncovers a treasure trove.
It turns out the Husband has millions of dollars stashed away in offshore funds.
Wife is now in a serious position of leverage on all fronts.
First, when it comes to the divorce, Wife is in the top position. Wife has the ability to use this newfound discovery to leverage a better settlement or otherwise continue probing into Husband’s financial affairs.
Oftentimes, Husband will have other issues here he is hiding as well and would prefer that Wife just let sleeping dogs lie.
As a result, they agree to a settlement which is much higher than Wife would’ve initially believed available because Wife was unaware of the $9 million that Husband has been hiding offshore.
This is a good thing (at least for the Wife).
On the other hand, this could actually turn out to be a very bad thing for both Husband and Wife.
Why?
Because the spouses filed married filing jointly (MFJ). Therefore, from the IRS’ perspective, each year the couple filed MFJ is a year in which both spouses will be liable on the tax return.
Therefore, for each year in which the account was not reported and the resulting income was not disclosed to the IRS is another year in which both parties may be subject to significant fines and penalties.
This will impact the amount of money left in the marital settlement, because, if the Internal Revenue Service believes the spouses acted willfully (which it seems like Husband did), then the IRS can come after them for upwards of 50% value of the account per year in penalties.
When this number is multiplied by three or six years depending on how long the audit is for, the penalty can max out at 100% (it used to be 300%, but the IRS was nice enough to limit the penalty to 100% value of the money).
Especially when a divorce is acrimonious (and really, when is it not?), Wife wants to run off to the IRS and disclose the information she learned about her husband.
This is not the best way to go about it; in fact, it is a horrible idea, especially in light of all the potential offshore penalties.
The IRS has developed and implemented numerous offshore voluntary disclosure programs designed to safely bring individuals into compliance.
These programs are available whether or not the spouse knew or was unaware of the accounts.
And, even though the penalties can sometimes be a little steep depending on which program the person enters, typically the clients avoid any criminal prosecution.
Moreover, one spouse can enter the program even if the other spouse does not want to cooperate.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post Offshore Bank Accounts & Divorce appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>Civil Tax Fraud Penalty
Civil Tax Fraud Penalty: While some tax violations are not necessarily a big deal, IRS Tax Fraud Penalties are tough. With Civil Tax Fraud, the penalties can reach upwards of 75% of the tax liability. In addition, the penalties can lead to even worse penalties, including a potential IRS Special Agent Investigation.
The reason is because in addition to monetary penalties, the stigma involved in civil tax has ruined many a reputation for many years to come — which may also impact earning capacity, and can cause significant collateral damage.
We will summarize the civil tax fraud penalty for you below:
Tax fraud occurs when a person seeks to intentionally deceived the IRS by fraudulently filing tax returns, omitting income, intentionally reducing the amount of income, or falsifying deductions. This is different than negligently making a mistake, which is not tax fraud.
Tax fraud comes in all different shapes and sizes, but when it involves foreign or offshore money, the stakes are even higher.
Why?
Because the IRS has a trick up its sleeve.
See, in order to prove tax fraud, the IRS has to show clear and convincing evidence. This is a higher standard of proof than preponderance of the evidence.
But preponderance of the evidence is all that is needed to enforce other penalties that can far exceed monetary penalties for other related foreign or offshore issues under civil tax fraud (such as FBAR Penalties).
Therefore, if the IRS is able to show clear and convincing evidence involving your civil tax fraud, then it will be much easier for them to meet the lower standard of proof required to enforce other international informational return penalties.
They know this, and they use it as leverage against you to get what they want...as much of your money as they can, with the least amount of resistance from you.
Therefore, if the IRS suspects Fraud involving Offshore or Foreign Money, the IRS will devote more time and resources to proving its claim, because then it can use that evidence to easily proof related matter such as:
Civil tax fraud is a comprehensive subject. In order to make it palpable to you (while keeping you awake), will break it down into various topics as provided in the IRS IRM (Internal Revenue Manual)
As provided by the IRS: “Civil fraud penalties will be asserted when there is clear and convincing evidence to prove that some part of the underpayment of tax was due to fraud. Such evidence must show the taxpayer’s intent to evade the assessment of tax, which the taxpayer believed to be owing. Intent is distinguished from inadvertence, reliance on incorrect technical advice, sincerely-held difference of opinion, negligence or carelessness.
In the case of a joint return, intent must be established separately for each spouse as required by IRC 6663(c) . The fraud of one spouse cannot be used to impute fraud by the other spouse. Thus, the civil fraud penalty may be asserted only on one spouse, unless there is sufficient evidence that both spouses participated in the fraudulent act(s) resulting in the underpayment reported in their joint return.”
It is important to understand the words being used to establish civil tax fraud. These are called “elements,” and the elements to civil tax fraud are as follows:
– Underpayment of Tax
– Due to Fraud (aka the IRS must show the taxpayer’s intent to evade the assessment of tax, which the taxpayer believed to be owing)
– Intent is distinguished from inadvertence, reliance on incorrect technical advice, sincerely-held difference of opinion, negligence or carelessness
– In the case of a joint return, intent must be established separately for each spouse as required by IRC 6663(c).
– The fraud of one spouse cannot be used to impute fraud by the other spouse.
– Thus, the civil fraud penalty may be asserted only on one spouse, unless there is sufficient evidence that both spouses participated in the fraudulent act(s) resulting in the underpayment reported in their joint return.”
The IRS has a heavy burden when it comes to proving fraud. If the IRS can merely prove mistake or inadvertence, that alone is insufficient to find you liable for IRS Civil Tax Fraud.
As provided by the IRS:
Since direct proof of fraudulent intent is rarely available, fraud must be proven by circumstantial evidence and reasonable inferences. Fraud generally involves one or more of the following elements:
– Deception
– Misrepresentation of material facts
– False or altered documents
– Evasion (i.e., diversion or omission)
As provided by the IRS:
The courts focus on key badges of fraud in determining whether there was an “intent to evade” tax.
A determination of fraud is based on the taxpayer’s entire course of conduct, with each badge of fraud given the weight appropriate to a particular case. An evaluation of fraud is based on the weight of the evidence rather than the quantity of the factors. Some of the common “first indicators (or badges) of fraud” include:
– Understatement of income (e.g., omissions of specific items or entire sources of income, failure to report substantial amounts of income received)
– Fictitious or improper deductions (e.g., overstatement of deductions, personal items deducted as business expenses)
– Accounting irregularities (e.g., two sets of books, false entries on documents)
– Obstructive actions of the taxpayer (e.g., false statements, destruction of records, transfer of assets, failure to cooperate with the examiner, concealment of assets)
– A consistent pattern over several years of underreporting taxable income
– Implausible or inconsistent explanations of behavior
– Engaging in illegal activities (e.g., drug dealing), or attempting to conceal illegal activities
– Inadequate records
– Dealing in cash
– Failure to file returns, and
– Education and experience
Internal Revenue Code Section 6663 can be broken down as follows:
If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
If the Secretary establishes that any portion of an underpayment is attributable to fraud, the entire underpayment shall be treated as attributable to fraud, except with respect to any portion of the underpayment which the taxpayer establishes (by a preponderance of the evidence) is not attributable to fraud.
In the case of a joint return, this section shall not apply with respect to a spouse unless some part of the underpayment is due to the fraud of such spouse.
The IRS has summarized its take on Clear and Convincing Evidence as follows: “ evidence showing that the assertion made is highly probable or reasonably certain. This is a greater burden of proof than preponderance of the evidence but less than beyond a reasonable doubt.”
As we’ve written about recently in a blog post you can find here, in order for the IRS to prove FBAR willfulness penalties – which can be extreme and weigh higher than civil tax fraud penalties, the IRS only must show preponderance of the evidence.
The requirements to prove the preponderance of the evidence are significantly lower than the requirements to prove clear and convincing evidence. Therefore, if the IRS is able to show that you acted fraudulently with clear and convincing evidence, and they are using effective counsel, then chances are they will be able to make a play for willfulness penalties regarding any foreign accounts involved in any of the transactions involving the civil tax fraud.
FBAR Willful penalties can range as high as $100,000 or 50% of the Max balance of the account – whichever is higher. For individuals or businesses stuck in a multiyear audit in which the examiner believes a person acted willfully, chances are the IRS can issue a 100% penalty and a multiyear penalty computation.
**Previously, the IRS could issue 300% penalties according to 50% per year, for each of six years but this was reduced to 100%,
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post What is a Civil Tax Fraud Penalty under IRC 6663? appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>FBAR for Disregarded Entities
FBAR Filing forDisregard Entities: The IRS does not limit FBAR reporting to individuals. Rather, the U.S. Government requires all U.S. persons (including entities and disregarded entities) to file the FBAR. And, with the Internal Revenue Service taking an aggressive position of matters involving the enforcement foreign accounts compliance, it is important to file the necessary reporting forms, and/or consider amnesty and voluntary disclosure if you are already late.
An FBAR is a Report of Foreign Bank and Financial Account Form.
You are required to file an “FBAR,” if on any day of the year, your aggregate total of maximum balances of all of your foreign accounts, exceed 10,000. The most important thing to remember is you do not need to have more than $10,000 in each account; rather, it is an annual aggregate total of the maximum balances of all the accounts.
A “United States person” means:
– A citizen or resident of the United States;
– An entity created or organized in the United States or under the laws of the United States. (The term “entity” includes but is not limited to, a corporation, partnership, and limited liability company)
– A trust formed under the laws of the United States; or • An estate formed under the laws of the United States.
Yes.
When an entity is disregarded, it implies the entity is disregarded for tax purposes. In other words, if you own a single member LLC, you can typically “disregard the entity” so that for tax purposes, you report the income/expenses just as you would as a sole practitioner with no entity, on Schedule C.
But, in most situations, the Disregarded Entity must still file the FBAR.
As provided by the IRS:
“Entities that are United States persons and are disregarded for tax purposes may be required to file an FBAR. The federal tax treatment of an entity does not affect the entity’s requirement to file an FBAR. FBARs are required under a Bank Secrecy Act provision of Title 31 and not under any provisions of the Internal Revenue Code.
-Financial account includes the following types of accounts:
-Bank accounts such as savings accounts, checking accounts, and time deposits,
-Securities accounts such as brokerage accounts and securities derivatives or other financial instruments accounts
-Commodity futures or options accounts
-Insurance policies with a cash value (such as a whole life insurance policy)
-Mutual funds or similar pooled funds (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions)
– Any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution.
If the disregarded entity never filed an FBAR, there is the potential for fines and penalties.
These penalties range from a warning letter in lieu of penalty, all the way to 100% penalty in a multi-year audit in which the U.S. Person to have been willful.
To resolve this issue, the U.S. Government has developed many tactics to uncover undisclosed for and offshore accounts, assets, and income. Two of the biggest weapons are FATCA and ITEG.
FATCA is the Foreign Account Tax Compliance Act. We have written numerous articles on the subject, but boiled down to its simplest form, the U.S. has entered into bilateral agreements with more than 110 different countries. The agreements require the reciprocal reporting of foreign account information of US account holders to the IRS, and vice versa. More than 300,000 foreign financial institutions have agreed to report this account holder information to the IRS.
The IRS has developed several International Tax Enforcement Groups designed specifically to review, evaluate and assess tax positions taken on tax returns to determine whether they are proper. Some of these issues include foreign tax credits, foreign earned income exclusion, and the new section 965 repatriation of foreign income, along with various other tax enforcement initiatives.
Penalty for failing to file FBARs
United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the year. The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:
Failure to File
If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.
The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
Failure to Pay
f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.
However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
Civil Tax Fraud
If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
A Penalty for failing to file FBARs
The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
A Penalty for failing to file Form 8938
The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 3520
Penalties for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
A Penalty for failing to file Form 3520-A
The failure to file each one of these information returns or for filing an incomplete return, is a penalty the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
A Penalty for failing to file Form 5471
The penalty starts at $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 926
An unfiled form may lead to a penalty that is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
A Penalty for failing to file Form 8865
Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
Fraud penalties imposed under IRC §§ 6651(f) or 6663
Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)
Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)
If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
An Accuracy-Related Penalty on underpayments imposed under IRC § 6662
Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty
Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)
Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).
A person convicted of tax evasion
Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000. A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000. A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post Do Disregard Entities File the FBAR? appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>Tax Avoidance vs Tax Evasion
Tax Evasion vs Tax Avoidance: When it comes to taxes and the IRS, sometimes there is a fine-line between planning to minimize taxes — and committing tax fraud, especially in the realm of international and offshore tax. How a U.S. person determines whether the tax planning activities they are performing is a form of tax planning (which is creative and perfectly legal) or a form of tax fraud or tax evasion (which is illegal) is a very important analysis.
Oftentimes whether or not someone was acting legally or illegally will depend on the timing of the avoidance.
We will summarize the Difference Between Tax Evasion vs Tax Avoidance with a case study example:
David decides he wants to launch his own foreign company.
It is less expensive for him to form a company overseas (as a wholly-owned subsidiary) in order to operate overseas, than it would be to create a company in the United States to operate overseas — since he still has to register the company abroad (usually in each country it operates in) in order to conduct foreign business.
In addition, the tax liability would be different for let’s say an S Corp. or LLC that is formed in the United States and operating internationally versus a wholly-owned subsidiary of a particular country that might only operate in that one country (aka Foreign Tax Credit Limitations, R&D Credits, etc.).
David’s goal is to own numerous rental properties throughout Costa Rica and Nicaragua.
Through his work overseas, David has made numerous connections in these two different countries and believes it could be a moneymaker in the future.
As a result, David starts with Costa Rica.
He forms a Sociedad Anonima, which is a is a bit of an oddity from a U.S. tax perspective. A Sociedad Anonima is one of the primary types of entities that is formed in Latin American countries, and even though oftentimes it is used for estate planning and to hold real estate, United States identifies it as a per se corporation.
In other words, when David has to file his form 5471, he will not have the option to disregard the entity as is common with LLCs within the United States.
Rather, the Corporation maintains default corporate status.
Is there anything illegal about David opening a Sociedad Anonima?
No.
David does not want the Corporation to be a Controlled Foreign Corporation, because then David will be subject to subpart F income.
David is not really sure what that means, but the recurring theme in his research is that subpart F income usually involves passive income and it may be taxed even if it is not distributed.
David hopes that owning rental properties and bed-and-breakfasts worldwide will become his only source of income. Therefore, David offers ownership in the company to three other individuals who are non-US persons, instead of just limiting it one non U.S. local Person (usually a Sociedad Anonima will require at least one local person to own 10% of the corporation).
A Controlled Foreign Corporation means the Corporation is owned more than 50% by U.S. persons, with each owning at least 10% share — with attribution rules applied (husband-and-wife would be considered owners of each other’s share).
If it is a Controlled Foreign Corporation and depending on if there is current year earning profits (E&P), there could be immediate tax liability with subpart F income and GILTI — even it has not ever been distributed to David.
If it is just a foreign corporation, then the same rules do not apply.
Since it is not a US corporation and does not operate in the United States, the Corporation is not subject to US tax law. Issues such as Mandated Salary, Earnings and Profit (E&P), Accumulated Earnings Tax (AET) and other very boring corporate tax laws are not applicable.
In addition, David is not taking any salary.
As a result, during the early years, David is not earning any income.
Is this legal?
Yes, under most situations it would be. Presuming the Corporation is acting properly under its own jurisdiction and not the U.S., the United States does not have authority over the corporation.
If the corporation begins to purchase US Situs or make US investments, the rules may change. But with its current status as a foreign corporation, in which David holds a minority interest, which does not operate in the United States, or own any US assets (and is not a controlled foreign corporation) it may mean that there is no tax liability to David unless he receives income.
**There are a number of different loopholes, exclusions, and exemptions to consider but from a tax avoidance standpoint, David is acting legally.
In the next example, the Tax Evasion vs Tax Avoidance conundrum becomes more evident.
Peter is not as astute as David. Peter is looking to earn money in a low-tax jurisdiction and do his best to avoid any current income tax – but he still wants the money and he wants it now.
Therefore, Peter opens up the same type of corporation in Costa Rica. Peter has about $2 million of investment that he’s looking to invest outside of the United States.
Just as David did in the previous example, Peter opens up his own Sociedad Anonima.
But, unlike David, Peter doesn’t trust anybody. Therefore, Peter will be the sole owner of the Sociedad Anonima — aside from the local accountant that he uses as the 10% owner that is required by local law.
Is there anything illegal about this setup?
No. But, since Peter is a US person who owns more than 50% of the business, it will be considered a controlled foreign corporation.
Peter decides to purchase different foreign mutual funds under the corporate name.
The mutual funds and rental property immediately begin generating income.
The income is distributed to Peter and in uneven amounts, but instead of Peter having it distributed to him, he has it distributed to a BVI he’s owned since 2004 and before the BVI shares need to be registered (which began in 2009)
Must Peter report the income? Yes.
Even though Peter hasn’t received the money personally, the money is most likely going to be considered subpart F income.
Moreover, even though Peter owns the BVI 100% himself and it is technically an entity – it is also a controlled foreign corporation owned entirely by Peter.
Therefore, anything that was distributed to the BVI would have to be reported by Peter as income since it is passive income and distributed to the BVI – which Peter owns.
Peter may also have GILTI and IRC 965 (2017) issues.
Peter keeps the money in Hong Kong.
Even though the money was issued to the BVI, the address of the BVI is in Hong Kong – which is very common. The money is accumulating in a bank account in Hong Kong of which Peter is the only owner and signatory.
Peter has done a lot of business with this particular bank over the years and therefore the bank does not ask Peter any questions about the source of the money.
Peter understands that he is a US citizen with a Social Security number, and he has been filing tax returns every year for his entire adult life.
Therefore, it would be somewhat strange if Peter suddenly stopped filing taxes.
When it comes time to file his tax returns, all Peter reports is the consulting income he earns from a California LLC for consulting he does in California.
Moreover, Peter uses a CPA and even though Peter has not told the CPA about these other investments, Peter has confirmed to the CPA when he was asked that he does not have any foreign or offshore investments or income.
Peter has violated US tax law and may get himself in some serious trouble. Here are the main issues Peter will have to contend with and why his actions are illegal and considered tax avoidance:
Since Peter is the primary owner of the foreign business, it is a controlled foreign corporation, and it earned passive income, Peter is required to report this information on his taxes and claim it as income.
For purposes of this case, you can presume that there are no related entity exceptions to the dividend distributions or look through exceptions.
Therefore, Peter was required to report these earnings as income.
Peter’s CPA is a well-versed CPA on international tax law. Peter knew this so the fact that he purposely did not tell his CPA about these earnings further alludes to his willfulness in the criminal aspect of his nondisclosure.
In addition, Peter did not report his foreign accounts.
Even though Peter is not the owner of the account, Peter is the only signature authority on the account and the main account holder is a corporation that Peter is the 100% owner of. As such, Peter is required to report these accounts on the annual FBAR and FATCA Form 8938.
Since Peter did not want to report this information to either the CPA or the IRS, he did not complete the necessary forms 5471 or 8621.
These are reporting forms that are required for individuals who have a certain percentage ownership of various foreign entities. Since Peter is the 90% owner and 100% owner respectively of these foreign corporations, Peter would be required to report the information to the IRS.
If Peter is not careful – and even if he is – Peter could get into some serious trouble if the IRS finds him. He knowingly did not report foreign income nor disclose offshore accounts and file the forms necessary to report his foreign businesses.
He has hundred thousands of dollars per year in unreported income and it is clear that by using these types of foreign businesses he had the intent to evade tax.
Since Peter’s income was earned legally, Peter may have the opportunity to enter New OVDP. Under the traditional OVDP (offshore voluntary disclosure program), Peter may agree to pay a fine/penalty to avoid much larger fines and penalties as well as significantly reduce any chance of any criminal prosecution against him by the IRS.
The IRS finds Peter first and Peter is under examination or audit for any reason, he loses the right to enter the program.
That concludes the summary of Tax Evasion vs Tax Avoidance.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have all the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post Tax Avoidance or Tax Evasion, What’s the Difference? appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
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How does the IRS Find Foreign Accounts
How does IRS Investigate Foreign Bank Accounts? With the IRS‘ increased enforcement of offshore account compliance, trust reporting and income disclosure, U.S. Taxpayers are at higher risk of penalties. The failure to properly report foreign money may result in significant fines.
One common question we receive, is How does the IRS Find Foreign Accounts?
With the recent creation of several International Tax Enforcement Groups, coupled by renewed interest in FBAR compliance, along with FATCA enforcement, there are 5 main ways the IRS located unreported foreign money.
These are 5 common methods the IRS used to locate and discover Foreign Accounts:
One of easiest ways for the IRS to discover your foreign bank account is to have the information hand-fed to them from various Foreign Financial Institutions.
In accordance with FATCA (Foreign Account Tax Compliance Act), more than 110 different foreign countries and more than 300,000 foreign financial institutions are actively reporting us account holder information to the IRS.
In other words, the IRS not have to do anything, since the majority of large and small institutions from most FATCA compliant countries around the world are already reporting to the IRS.
We are not huge fans of most whistleblowers. If blowing the whistle is to protect the interests of the underrepresented then we are all for it.
Usually, this is not the case. Most of the time, it is just a “tattle-tale” — someone who’s looking to get out of trouble for something they did, by getting you in trouble.
FBAR balances can now be considered as part of the reward someone can claim for ratting you out — you have to be careful when not reporting foreign accounts — along with vetting out the company you keep.
This is always a danger.
The IRS can Audit you for any number different reasons. In recent years, with the introduction of FATCA, and renewed interest in FBAR penalties (which are lopsided and extreme in nature), if you are under audit, you have to be careful.
This is especially true if you are in an eggshell audit or reverse eggshell audit. If you provide the agent with inaccurate and/or intentional misrepresentations or omissions — it may take a turn for the worse.
Therefore, if you’re under audit — and especially if you receive an audit notice and you have unreported for undisclosed foreign bank accounts – you need to be careful before making any representations or statements to the IRS.
Here’s a common example: David decides he wants to get into tax compliance by entering the voluntary disclosure program. David has co-ownership of certain accounts with other individuals he partnered with for his business.
David’s partners are not so keen on getting into compliance and are trying to fly below the radar hoping that the foreign country they picked would not report the foreign accounts. David on the other hand, is very concerned about getting in criminal trouble – since all partners were aware of the reporting requirement.
Therefore David makes the leap to get into compliance.
Unfortunately as part of the compliance process, David has to identify the names of the joint account holders, which can lead to problems for the partners.
The United States is a member of J5 which is an international task force designed to combat and reduce offshore evasion, with an emphasis placed on cryptocurrency.
In addition, the IRS issued a summon/subpoena to Coinbase. And, even though Coinbase tried to fight it, in the end they relented and turned over upwards of 14,000 Account holders names to the IRS.
While the internal Revenue Service and financial crimes enforcement unit (FinCEN) have not formalized specific reporting requirements the cryptocurrency, it is safe say that if you have your crypto currency in an account or other type of Financial institution (as opposed to personal wallet), the IRS may enforce foreign bank account reporting rules against you.
If you have unreported offshore/foreign income, assets, accounts, or investments — the best thing is generally to try to get into IRS Offshore Compliance though voluntary disclosure/tax amnesty before it is too late and you lose the right to disclose.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post How IRS Investigates Your Foreign Bank Accounts appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
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FBAR 2020: The IRS requirements for submitting the FBAR is not much different than the prior years. This post will serve as a (brief) refresher as to why Foreign Bank Account Reporting should remain on your radar. The FBAR is the Foreign Bank and Financial Account Reporting Form (aka FinCEN 114). It is not limited to only bank accounts.
The form is used to report Foreign Bank Accounts, in addition to investment accounts, life insurance, foreign pension, etc.
In recent years, the IRS has made foreign accounts compliance a key enforcement priority.
The failure to timely report the FBAR 2020 may result in fines and penalties.
We will summarize the basics of FBAR for 2020.
FBAR is the Foreign Bank and Financial Account Form. The FBAR form must be filed electronically.
FBAR or FinCEN Form 114 is used to report foreign bank and financial accounts.
FBAR is not limited to individuals. Rather, Entities, Trusts and Estates may also have an FBAR filing requirement.
The threshold for filing is when the filer has an “annual aggregate total” of more than $10,000 on any day of the year.
In addition, the FBAR requires more than just bank accounts. FBAR also includes:
FBAR 2020
The FBAR 2019 form is due in April 2020, but is on automatic extension.
Therefore, you have until October 15, 2020 to file your 2019 FBAR, and you do not have to file an extension form.
In general, FBAR reporting is a key enforcement priority for the IRS and the FBAR reporting requirements can be complicated.
The failure to file the FBAR can lead to excessive fines and penalties, but there are various amnesty programs to help you avoid these penalties.
FBAR Filing can be complicated, depending on the specific FBAR Filing requirements of the filer. For example, if a person has one savings account in Taiwan, the reporting is not that bad.
But, if a person has 50 accounts, life insurance, mutual funds, and foreign life insurance — the FBAR filing may be much more complicated.
The FBAR filing deadline is relatively forgiving.
Unless the IRS and FinCEN change the current FBAR filing deadline rules, then the FBAR is due when your tax returns are due (April or June). But, the FBAR is on automatic extension through October.
The FBAR Instructions as provided by the IRS and FinCEN can be dense. Therefore, Golding & Golding have prepared our own FBAR instructions for your reference.
FBAR penalties: The failure to file the FBAR (or filing the FBAR late) may result in FBAR penalties. FBAR penalties can be broken down into different categories:
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post FBAR 2020 & the IRS appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>US Tax of Usufruct & Naked Ownership: FBAR & FATCA
US Tax of Usufruct & Naked Ownership: Unless you live in Louisiana or are familiar with civil law, you may be unfamiliar with the concept of a usufruct and naked ownership. In many European countries, as well as in Louisiana, there is a form of ownership called naked ownership and Usufruct Law.
These types of ownership are different than the general type of asset ownership available in the U.S. It is a hybrid of estate law, trust and general ownership/borrowing concepts.
What make these types of structures even more complicated, is the reporting under IRS International Information return filing – such as FBAR & FATCA.
Sounds sexy, right?
Naked ownership is the concept of owning the property like a shell – without certain rights. Generally, when someone has naked ownership of a property, they own it but they do not have full rights to the property. Rather, another person has the limited right to use and enjoy the property.
In a common situation, a client will have received a gift or inheritance of a property or business. The business may generate income, but that income is all going to a 3rd party, aka the Usufruct.
Michael is 9 years old when his father purchases him a property in an up-and-coming area that has a tenant/owner.
Michael’s Father believes the value will shoot-up in the future, and wants to take advantage of the ownership now. Michael’s family does not need the income, so the immediate income and earnings is not important.
Therefore, they purchase naked ownership of the home.
The Usufruct has limited rights to the property. This is generally is similar to someone with a life estate, including residing in the property and/or collecting rent.
It also resembles a QPRT to the extent that it allows someone to reside in the home (such as a parent), without giving them the right to sell the property or make an major changes to it.
Generally, a Naked Owner of the property is not going to be taxed on the income.
Why?
Because the naked owner does not have any rights to the income.
It is similar to owning an asset as a secondary owner with no right to income. While it may be reportable (FBAR & FATCA), if there is no income attributed to the naked owner, then there is no tax.
As to the Usufruct, they would be taxed. Even if the Usufruct cannot sell the property, they are enjoying the income and therefore would pay tax on it.
A Naked Owner would presumably have to report the asset and possibly for the Usufruct.
Why?
An income stream is not required for someone to have to report the assets, so therefore the naked owner would have a reporting requirement. In other words, assets are reportable even if there is no income attributed to it.
As to the Usufruct, since they are receiving the income, the IRS may take the position that the Usufruct is a constructive owner. Since offshore penalties for non-compliance can be very comprehensive, compliance is crucial.
Here are some common reporting examples:
Reporting Foreign Bank Accounts
Reporting Foreign Assets
Reporting Investment Funds
Reporting Gifts and Trust
Reporting Trust Ownership
Reporting Foreign Corporations
Reporting Foreign Partnerships
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post How does US Tax a Usufruct & Naked Ownership appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>US Taxation of New Zealand Pension Plans
US Taxation of New Zealand Pension Plans: The pension plan system in New Zealand is similar to many other foreign countries. There is a two/three pillar system, which involves both the state pension, occupational pension, and/or private pension. While New Zealand has a superannuation, the NZ Super operates differently than the Australian superannuation fund.
Each year we work with U.S. Persons who have work in New Zealand and/or have participated in the foreign pension plan system.
While PIE investments and New Zealand foreign trusts are very common international tax related issues, so are issue involving the New Zealand pension plan system.
We will summarize the U.S. Taxation of New Zealand Pension Plans, along with FBAR, FATCA and other IRS international reporting requirements.
The first part of the US Taxation of New Zealand Pension analysis is with the Pillar 1 Social Assistance program.
The New Zealand superannuation is not technically a pension, in the sense that it is not used to offset wages.
Similar to the social assistance program in Australia and other countries, the purpose of the New Zealand superannuation is to assist people with old-age, by providing all people who qualify a minimum standard of income.
It is not “income-tested” which means you do not have to be retired to receive it or employed to contribute to it..
As provided by the NZ Superannuation website:
“You may qualify for NZ Super if you:
- are 65 or over
- either:
- are a New Zealand citizen
- are a permanent resident, or
- hold a residence class visa
- are ordinarily resident in New Zealand, the Cook Islands, Niue or Tokelau when you apply
- have lived in New Zealand for at least 10 years since you turned 20
- have lived in New Zealand, the Cook Islands, Niue or Tokelau (or a combination of these) for at least 5 years since you turned 50.
- When we say ‘you live’ or ‘you’ve lived’, we mean you normally live in NZ, the Cook Islands, Niue or Tokelau and that’s where your home is.
- You may qualify for NZ Super with less than 10 years residence if you have migrated to New Zealand from a country that New Zealand has a social security agreement with.
- Note: You don’t have to be retired from work to get NZ Super as it’s not income tested.
- Other income you earn can affect other payments you get from us (over and above NZ Super/Veteran’s Pension).”
There are certain resident requirements that are necessary to qualify for the pension, but it is not employment related and therefore even if a person has not worked, they may still receive the New Zealand superannuation distribution – as long as the other requirements are met.
No.
Even though the U.S. and Australia have entered into a Totalization Agreement (27 countries in total), the U.S, and New Zealand have not entered into a Totalization Agreement.
This means a Taxpayer may end up paying into two (2) social security systems
An example of how the Totalization Agreement works:
Under the terms of the agreement, a national of the United States or Country X who would otherwise be covered by both countries, will generally remain covered only by the country of which he or she is a national and is exempt in the other.
However, Country X nationals and dual nationals (nationals of both the U.S. and Country X ) who are working in employment or self-employment covered by both systems must elect to be exempt from coverage and taxation under one system and to pay Social Security taxes to the other.
This election must be made within three months from the date the work begins.
Therefore, while payments the Country X Social Security/Assistance system is not deductible, a U.S. person working in Country X does not have to pay into both systems.
The next part of the US Taxation of New Zealand Pension focuses on the KiwiSaver.
KiwiSaver represents the second pillar (pillar II) of the New Zealand Pension system.
Unlike the NZ Superannuation, the KiwiSaver is offered via employment, and is “income-tested.”
Employees contribute a portion of their gross earnings into the KiwiSaver.
Since 2008, the Employer is require to contribute a certain portion into the KiwiSaverm, up to 4% based on length of employment and salary amounts.
While the employer portion is deductible to the employer, the amount of contributions from the employee is not deducted from the gross, but rather the next pay of the employee.
For example, if the rate was the 8%, then 8% of the salary is contributed (based on the gross), but the 8% is deducted from the next pay – so there is no gross deduction for the employee contributions.
The KiwiSaver is generally invested in global funds.
Since it is invested in funds, there are concerns about whether there may be a PFIC Form 8621 issue, and the timing of the reporting for the U.S. Person.
As provided by the IRD:
“Employers work out if new employees are eligible for automatic enrolment in KiwiSaver. They also enrol existing employees if they choose to opt in to KiwiSaver.
Employers send the details of all enrolments to us and also send us new employee KiwiSaver opt out requests.
Employers make KiwiSaver deductions from their employees’ pay. They also make a compulsory minimum contribution of 3% towards their employees’ KiwiSaver fund – unless they are already contributing to another superannuation fund for their employees.
An employer will also stop payments if their employee has a savings suspension, or if they’re given notice by us or their employee that contributions are to stop.
Employers cannot give you financial advice.”
*Please note the spelling differences in NZ and AUS of the word “enrollment”
Our role in KiwiSaver
Employers pay employee deductions and employer contributions to us with the rest of their payroll deductions like tax.
We also manage voluntary contributions from employees, self-employed people and those not working. Any money paid to us for KiwiSaver we pass on to KiwiSaver providers. We also administer requests for opt-outs and savings suspensions.
If you do not choose a scheme, we will allocate you to one of our default schemes or to your employer’s chosen scheme.
We cannot give you financial advice.
KiwiSaver Providers role in KiwiSaver
KiwiSaver scheme providers invest their members’ KiwiSaver funds to make a greater return on the savings for their retirement. They also have the main relationship with members.
KiwiSaver providers with staff who are registered as financial advisors can give you advice.
The Government’s role in KiwiSaver
There is a yearly government KiwiSaver contribution to members. KiwiSaver providers apply for this government contribution on behalf of their members. The amount of the government contribution depends on how much a member has contributed to their fund from 1 July to 30 June. The maximum amount the government contributes is $521.43.
KiwiSaver is a voluntary, work-based retirement savings scheme. Independent KiwiSaver providers run the savings schemes. You can choose one of them to manage your savings.
KiwiSaver is for all New Zealand citizens and permanent residents living or normally living in New Zealand. Members can still get New Zealand Superannuation when they reach 65.
You are automatically enrolled into KiwiSaver if you are:
- eligible to be enrolled
- starting work with a new employer
- aged between 18 and 65.
- If you are eligible for KiwiSaver but not yet a KiwiSaver member you can enrol by:
- asking your employer for a KiwiSaver employee information pack and completing a KiwiSaver deduction form
- choosing a provider and signing directly with them.
- Private Investments”
In addition to the Superannuation and KiwiSaver, New Zealand has personal voluntary pensions available as well, which is generally used in lieu of KiwiSaver. They are less common with the introduction of the KiwiSaver, but may include PIE investments, Personal Superannuation, etc.
The Tax Treaty between the U.S. and New Zealand is relatively compact on the issue of Pensions.
Let’s take a look:
The treaty sets out various pension distribution rules under Article 18.
“Subject to the provisions of Article 19 (Government Service)
(a) Pensions and other similar remuneration derived and beneficially owned by a resident of a Contracting State in consideration of past employment shall be taxable only in that State; and
(b) Pensions and other payments made under the social security legislation of a Contracting State to a resident of the other Contracting State or a citizen of the United States shall be taxable only in the first-mentioned State.”
What does 1(a) Mean?
It means that subject to Article 19 on service for prior employment for the government, a pension that is being paid to a resident of the U.S. for consideration of employment (in US or New Zealand) is taxable in the U.S., because the taxpayer is a resident of the U.S.
Two important aspects of the treaty language:
What does 1(b) Mean?
It means that if the payment when it involves “Social Security,” then it is only taxable in the contracting state of source.
So, if a U.S. resident receives Social Security from New Zealand, then it is only taxable to New Zealand (First-Mentioned State) and not U.S. (Second-Mentioned State).
“Annuities derived and beneficially owned by a resident of a Contracting State shall be taxable only in that State. The term “annuities” as used in this paragraph means stated sums (not being alimony) paid periodically at stated times during life or during a specified or ascertainable number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered or to be rendered)”
What does Paragraph 2 Mean?
It means, for example, an annuity (as defined in the treaty) owned by a resident of a contracting state, shall only be taxable in that state.
So if a U.S. resident is receiving an annuity from New Zealand, it is taxable in the contracting state of the resident.
Unlike other country tax treaties (such as the UK), pension contributions are not tax deductible in the U.S..
It makes sense, since the contributions in NZ to theNZ KiwiSaver are deducted from the Net, not the Gross in New Zealand.
Here is an example of how a tax treaty can make an otherwise non-deductible pension contribution deductible for US Tax:
For purposes of this Convention, where an individual who is a participant in a pension plan that is established and recognized under the legislation of one of the Contracting States performs personal services in the other Contracting State:
(a) Contributions paid by or on behalf of the individual to the plan during the period that he performs such services in the other State shall be deductible (or excludible) in computing his taxable income in that State. Any benefits accrued under the plan or payments made to the plan by or on behalf of his employer during that period shall not be treated as part of the employee’s taxable income and shall be allowed as a deduction in computing the profits of his employer in that other State.
(b) The provisions of this paragraph shall apply only if:
(i) contributions by or on behalf of the individual to the plan (or to another similar plan for which this plan was substituted) were made before he arrived in the other State; and
(ii) the competent authority of the other State has agreed that the pension plan generally corresponds to a pension plan recognized for tax purposes by that State.
The benefits granted under this paragraph shall not exceed the benefits that would be allowed by the other State to its residents for contributions to, or benefits otherwise accrued under a pension plan recognized for tax purposes by that State.
There are many IRS International Information forms to consider when reporting the New Zealand Pension to the IRS.
With the IRS taking an aggressive position on matters involving foreign accounts compliance and unreported offshore income — it is important to stay compliant with the Internal Revenue Service rules and requirements.
Since the US and New Zealand have entered into multiple tax treaties such as a FATCA Agreement and Double Tax Treaty, there are complex rules involving which country can tax the pension – usually based on residency and which Pillar is at play.
Since the Pillar 1 is social security equivalent, it is generally not reportable, as it is not an individualized funded accounts.
As to Pillars 2 and 3, here are some of the basics:
The FBAR Is used to report foreign bank and financial accounts, including life insurance, investment account, etc.
Generally, while Pillar 1 (Social Security) is not considered FBAR reportable — since it is equivalent to U.S. Social Security and not technically an account — the same cannot be said for other pillars.
Pillar 2 (Occupation) or Pillar 3 (Private) are reported on the FBAR since they are segregated accounts for each person who contributes, and the accounts have a separate identifier and value based on the contribution amounts.
The IRS Form 8938 (FATCA) form is required for certain U.S. Taxpayers to report specified foreign financial assets.
The FATCA reporting (for U.S. Taxpayers) was introduced on the 2011 tax returns, and is technically referred to as the Foreign Account Tax Compliance Act.
Foreign Pension & Retirement is considered a foreign asset for FATCA purposes and therefore would be reportable on a Form 8938.
Generally, the same rules would apply as for the FBAR, insofar as Pillar 1 may escape reporting, but Pillars 2 and 3 are reportable.
Form 3520-A/3520 is used to report Foreign Trusts. At its most basic, a pension such as an New Zealand Pension is foreign trust:
And, each trust has an Administrator, along with the employee beneficiary.
Thus, technically, the New Zealand Pensions are a Trust.
Pillar 1 is State mandated (State) which most resembles U.S. social security. It has no identifiable segregated balance, and the beneficiary (employee) is not the owner of the trust.
Presumably, the trust would not be reportable on Forms 3520/3520-A.
There is no concrete ruling by the IRS on the reporting for the New Zealand Pillar 2 and 3 pensions on the Form 3520-A. Generally, unless the employee has contributed more to the pension plan than the employer has, it is not reported on Forms 3520, since the beneficiary is not the owner of the trust during the years the beneficiary is employed and funding the pension.
In addition, it may qualify for a Revenue Procedure exception under Rev. Proc. 2020-17, depending on the person’s salary, age (determines percentage contributions), voluntary vs. mandatory, and employed vs. self-employed.
New Zealand Pension Pillar 3 is completely optional and voluntary.
Therefore, chances are this is a foreign trust which would be subject to Form 3520-A Reporting (Rev. Proc. 2020-17 may exempt reporting)
In addition, some clients will take the position that it is still a form of pension vs. pure investment, and therefore while it is in the growth phase, and deductions are not being taken, it is can escape reporting.
Form 8833 is used by Taxpayers who want to take a Treaty Position on issues involving the applicability of tax rules when it involves the pension (and other tax related matters).
Form 8621 is used to report PFIC (Passive Foreign Investment Companies). It also includes Foreign Mutual Funds. Generally, Pillar 1 is not reportable, but Pillars 2 and 3 would be.
With PFIC, the main question will become whether the PFIC requirement (presuming the investments have funds in them), are reportable during the growth period (pre-distribution), or only once the pension becomes active/accessible.
That is a strategy issue each person should discuss with their counsel.
If you have not properly reported your New Zealand Foreign Pension in the U.S. for tax, FBAR, FATCA, PFIC (8621) or other reporting, you may be out of compliance and possibly subject to fines and penalties.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post Is a New Zealand Pension Taxable in the US? FBAR & FATCA appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>U.S. Tax of Foreign Income Explained
U.S. Tax of Foreign Income: The United States is one of the few countries in the world that follows a worldwide income tax and reporting model. This means that U.S. Persons are subject to tax on their worldwide income, and must report their global assets to the IRS each year on a myriad of different international information reporting forms.
To be a considered a U.S. person (Individual), there are three main categories:
We will summarize the U.S. Tax of Foreign Income tax and IRS reporting requirements.
While the distinction between U.S. Person and U.S. Citizen may be important for immigration and other related purposes, from an IRS perspective it’s pretty straightforward.
A Legal Permanent Resident/Green-Card Holder is subject to the same tax rules as a U.S. citizen.
Both U.S. Citizens and Legal Permanent Residents are taxed on their worldwide income regardless of where they reside, and regardless of where the incomes was earned.
There is also a third “catchall” category of individuals who are also required to pay tax on their worldwide income and reporting their foreign asset. It is referred to the substantial presence test, and it requires non-citizens and non permanent residents to suffer the same tax fate as their resident/citizen counterparts — unless they can qualify for the Closer Connection Exception (8840 Form).
When it comes to reporting foreign income in the U.S., there are various limitations, exception and exclusions.
Here are a few tips to keep in mind:
The United States has entered into tax treaties with many countries. Common types of tax and reporting treaties, include:
For example, you may have a retirement plan in a country of where there is no tax treaty, and therefore the accrued but non-distributed income might be presently taxable, even if it is non-taxable (aka growing tax-free) in the country of origin (example CPFs in Singapore).
Conversely, if there is a tax treaty in place as with the UK, then typically the non-distributed retirement funds will be tax deferred until they are distributed, and even the contributions may be tax deductible.
If you work overseas, and meet the Tax Home test as well as either the Physical Presence Test or Bona-Fide Resident test, you may qualify to have upwards of $105,900 excluded from your income, along with a portion of your housing deduction. This will jump to nearly $108,000 for 2020.
If you are married filing jointly, you can each take the exclusion, although you cannot double dip the housing exclusion.
If you already pay taxes in a foreign country on the income you earned abroad, you may be able to apply those taxes you paid towards your US tax liability. This is referred to as the “Foreign Tax Credit.”
Typically Individuals will use form 1116 to claim the credit for different categories.
While exceptions apply, usually you cannot mix earned income credits against investment income credits, although there are some highly technical rules, which sometimes may allow you to use a hybrid method.
In addition to tax liability, you may also have offshore/foreign/international reporting issues for accounts, assets, income and investments that you have overseas.
The FBAR is used to report “Foreign Financial Accounts.” This includes investments funds, and certain foreign life insurance policies.
If on any day of the year, a person’s (not just individual) aggregated maximum balances of all of their foreign accounts exceeds $10,000, they will likely have to file the form.
The most important thing to remember is that a person does not need to have more than $10,000 in each account; rather, it is an annual aggregate total of the maximum balances of all the accounts.
This form is used to report “Specified Foreign Financial Assets.”
There are four main thresholds for individuals is as follows:.
Form 3520 is filed when a person receives a Gift, Inheritance or Trust Distribution from a foreign person, business or trust. There are three (3) main different thresholds:
Form 5471 is filed in any year that you have ownership interest in a foreign corporation, and meet one of the threshold requirements for filling (Categories 1-5). These are general thresholds:
Form 8621 requires a complex analysis, beyond the scope of this article. It is required by any person with a PFIC (Passive Foreign Investment Company).
The analysis gets infinitely more complicated if a person has excess distributions. The failure to file the return may result in the statute of limitations remaining open indefinitely.
*There are some exceptions, exclusions, and limitations to filing.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post How does the U.S. Tax Foreign Income? appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>Is an Italy Pension Taxable in the US? FBAR & FATCA
US Taxation of Italy Pension Plans: As with many foreign countries, the Italian pension system follows the common three (3) Pillar structure, which combines State, Occupational, and Voluntary Pension schemes. In accordance with the World Bank Pillar framework (which recently transitioned from a three pillar to five pillar system), the Italian pension system has three components to it:
In general, the Italian Pension system has been going through changes, including increasing the age of retirement, and modifying early retirement — and how the pension system works in general.
The U.S. Tax liability and IRS Reporting for the Italian Pension of a U.S. Person will differ than how the pension is taxed in Italy.
Generally the Pillar 1 is characterized as social security, while Pillars 2 and 3 are treated as “pension.”
The first part of the article will summarize how Italy Pension is taxed n the U.S.
Beyond the US tax liability of an Italian pension, is the equally complicated concept of reporting the pensions. Foreign pensions may be reported on various forms, such as:
We will summarize if an Italy Pension Plan Taxable in the US, and how the reporting rules work.
Pillar 1 is social assistance, and is similar to U.S. Social Security. And, just as social security payments by individual taxpayers (non self-employed) are not deductible on their U.S. tax returns, contributions to the public pension (Pillar 1) are not deductible either.
The amount of contributions for each taxpayer are based done the earning capacity of the taxpayer. There are different tax rates, including a minimum threshold a person must earn in order to have to contribute.
Individuals do not have specific ownership of their contribution portion as they do with a Pillar 2 or Pillar 3 pension, like a 401K plan or IRA.
The U.S. and Italy have entered into a Totalization Agreement. The agreement prevents the taxpayer from paying into two social security systems.
As provided by the Agreement:
Under the terms of the agreement, a national of the United States or Italy who would otherwise be covered by both countries, will generally remain covered only by the country of which he or she is a national and is exempt in the other.
However, Italian nationals and dual nationals (nationals of both the U.S. and Italy) who are working in employment or self-employment covered by both systems must elect to be exempt from coverage and taxation under one system and to pay Social Security taxes to the other.
This election must be made within three months from the date the work begins.
Therefore, while payments the Italian Social Security/Assistance system is not deductible, a U.S. person working in Italy does not have to pay into both systems.
Pillar 2 is the occupational pension in Italy, which is funded through employment.
Privatized voluntary pension plans are not as common in Italy as they are in other countries.
Some industries have had private occupational plans before certain provisions were introduced into law, but with the recent changes to the Italian Pension Scheme Law, Italy is seeking to bolster Pillar 2 and 3 pensions.
There are various categories of pensions in Italy that are considered Pillar 2.
Some of the programs are funded through agreements in specific areas of industry, and other fund are funded developed through various foreign institutions.
In Italy, the employee can deduct the contributions to the pension fund up to a certain amount (generally about $6000 USD).
The taxation rules are detailed below under the Treaty analysis portion of this article.
Pillar 3 is for Individual Pension Schemes, which do not have to specifically associated with an employer.
In other words, these types of individual pensions are not facilitated through employment, but are rather individual (non-occupational) pension schemes (PIPs).
There is no specific employment limitation or requirement, and are generally considered “open” types of pension plans.
The Tax Treaty between the U.S. and Italy on the issues of Pensions is well-suited for cross-border taxpayers.
Let’s go through it:
The treaty sets out various pension distribution rules under Article 18.
“Subject to the provisions of paragraph 2 of Article 19 (Government Service), pensions and other similar remuneration beneficially derived by a resident of a Contracting State in consideration of past employment shall be taxable only in that State.”
This paragraph is bit less specific than in other treaties, but is then clarified in the subsequent paragraphs below.
It basically provides that if a Taxpayer receives pension while a resident of a contract State (U.S.) for consideration of past-employment is taxable only in that state (U.S.), and vice versa.
“Payments made by a Contracting State under provisions of the social security or similar legislation of that State to a resident of the other Contracting State shall be taxable only in the other State.”
Unlike many other treaties that limits tax on social security to the country of source, this section is written differently.
Thus, social security payments made by a contracting state (Italy) to a resident of other the state (U.S.) shall be taxable only in the other state (U.S.)
“Notwithstanding the provisions of paragraph 1, if a resident of a Contracting State becomes a resident of the other Contracting State, lump-sum payments or severance payments (indemnities) received after such change of residence that are paid with respect to employment exercised in the first-mentioned State while a resident thereof, shall be taxable only in that first-mentioned State.
For purposes of this paragraph, the term “severance payments (indemnities)” includes any payment made in consequence of the termination of any office or employment of a person.”
This paragraph clarifies paragraph 1 and provides that if for example, a resident of Italy, becomes a resident of the U.S., then lump sum payments or severance are only taxable in Italy (and vice versa).
“Annuities beneficially derived by a resident of a Contracting State shall be taxable only in that State.
The term “annuities” as used in this paragraph means a stated sum paid periodically at stated times during life or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration in money or money’s worth (other than services rendered).”
This paragraph also clarifies paragraph 1 and provides that pension annuities derived by a resident of Italy (for annuities sourced from Italy) are only taxable in Italy.
Alimony and child support payments paid to a resident of a Contracting State by a resident of the other Contracting State shall be taxable only in the first-mentioned State. However, such payments shall not be taxable in either State if the person making such payments is not entitled to a deduction for such payments in the State of which he is a resident...
*This paragraph refers to alimony and child support payments and beyond the scope of this article.
For purposes of this Convention, where an individual who is a participant in a pension plan that is established and recognized under the legislation of one of the Contracting States performs personal services in the other Contracting State:
(a) Contributions paid by or on behalf of the individual to the plan during the period that he performs such services in the other State shall be deductible (or excludible) in computing his taxable income in that State. Any benefits accrued under the plan or payments made to the plan by or on behalf of his employer during that period shall not be treated as part of the employee’s taxable income and shall be allowed as a deduction in computing the profits of his employer in that other State.
(b) The provisions of this paragraph shall apply only if:
(i) contributions by or on behalf of the individual to the plan (or to another similar plan for which this plan was substituted) were made before he arrived in the other State; and
(ii) the competent authority of the other State has agreed that the pension plan generally corresponds to a pension plan recognized for tax purposes by that State.
The benefits granted under this paragraph shall not exceed the benefits that would be allowed by the other State to its residents for contributions to, or benefits otherwise accrued under a pension plan recognized for tax purposes by that State.
What does it Mean?
This paragraph is similar to the UK treaty, and it helps Taxpayers immensely.
It basically provides that, for example, contributions paid for a U.S. Person who is working in Italy and receiving pension contributions shall be deductible on their U.S. tax returns.
There are many IRS International Information forms to consider when reporting the Italian Pension to the IRS.
With the IRS taking an aggressive position on matters involving foreign accounts compliance and unreported offshore income — it is important to stay compliant with the Internal Revenue Service rules and requirements.
Since the US and Italy have entered into several tax treaties such as the Double Tax Treaty, FATCA Agreement, and Totalization Agreement there are complex rules involving which country can tax the pension – usually based on residency and which Pillar is at play.
Since the Pillar 1 is social security equivalent, it is generally not reportable, as it is not an individualized funded accounts.
As to Pillars 2 and 3, here are some of the basics:
The FBAR Is used to report foreign bank and financial accounts, including life insurance, investment account, etc.
Generally, Pillar 1 (Social Security) is not considered FBAR reportable since it is equivalent to U.S. Social Security and not technically an account, the same cannot be said for other pillars.
Pillar 2 (Occupation) or Pillar 3 (Private) are reported on the FBAR since they are segregated accounts for each person who contributes, and the accounts have a separate identifier and value based on the contribution amounts.
The IRS Form 8938 (FATCA) form is required for certain U.S. Taxpayers to report specified foreign financial assets.
The FATCA reporting (for U.S. Taxpayers) was introduced on the 2011 tax returns, and is technically referred to as the Foreign Account Tax Compliance Act.
Foreign Pension & Retirement is considered a foreign asset for FATCA purposes and therefore would be reportable on a Form 8938.
Generally, the same rules would apply as for the FBAR, insofar as Pillar 1 may escape reporting, but Pillars 2 and 3 are reportable.
Form 3520-A/3520 is used to report Foreign Trusts. At its most basic, a pension such as an Italy Pension is foreign trust:
And, each trust has an Administrator, along with the employee beneficiary.
Thus, technically, the Italy Pensions are a Trust.
Pillar 1 is State mandated (State) which most resembles U.S. social security. It has no identifiable segregated balance, and the beneficiary (employee) is not the owner of the trust.
Presumably, the trust would not be reportable on Forms 3520/3520-A.
There is no concrete ruling by the IRS on the reporting for the Italy Pillar 2 and 3 pensions on the Form 3520-A. Generally, unless the employee has contributed more to the pension plan than the employer has, it is not reported on Forms 3520, since the beneficiary is not the owner of the trust during the years the beneficiary is employed and funding the pension.
In addition, it may qualify for a Revenue Procedure exception under Rev. Proc. 2020-17, depending on the person’s salary, age (determines percentage contributions), voluntary vs. mandatory, and employed vs. self-employed.
Italy Pension Pillar 3 is completely optional and voluntary.
Therefore, chances are this is a foreign trust which would be subject to Form 3520-A Reporting (Rev. Proc. 2020-17 may exempt reporting)
In addition, some clients will take the position that it is still a form of pension vs. pure investment, and therefore while it is in the growth phase, and deductions are not being taken, it is can escape reporting.
Form 8833 is used by Taxpayers who want to take a Treaty Position on issues involving the applicability of tax rules when it involves the pension (and other tax related matters).
Form 8621 is used to report PFIC (Passive Foreign Investment Companies). It also includes Foreign Mutual Funds. Generally, Pillar 1 is not reportable, but Pillars 2 and 3 would be.
With PFIC, the main question will become whether the PFIC requirement (presuming the investments have funds in them), are reportable during the growth period (pre-distribution), or only once the pension becomes active/accessible.
That is a strategy issue each person should discuss with their counsel.
If you have not properly reported your Italy Foreign Pension in the U.S. for tax, FBAR, FATCA, PFIC (8621) or other reporting, you may be out of compliance and possibly subject to fines and penalties.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post Is an Italy Pension Taxable in the US? FBAR & FATCA appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>
FBAR Penalties: Foreign bank account penalties are on the rise, and can range extensively. U.S. persons who violate FBAR filing rules by filing late or delinquent foreign bank account reporting form FinCEN Form 114 may be subject to significant IRS civil penalties.
Non-Willful violations range from a warning letter in lieu of penalty, to a $10,000 per account violations, per year penalty. Willful penalties are the greater of 50% maximum balance or $100,000.
While non-willful FBAR penalties can sometimes be waived (Taxpayer receives a warning letter in lieu of penalty), willful penalties can reach upwards of 50% value of the account’s maximum balance.
Criminal enforcement is rare, but may result in extensive fines and penalties, including confinement.
We will summarize FBAR Penalties and how the IRS requirements have been updated.
*The $10,000 and $100,000 penalties adjust every few years for inflation, and are currently set at ~$13,000 and ~$126,000.
FBAR Penalties 2020: IRS Steps Up Compliance Enforcement
Since 2003, the IRS has taken responsibility for enforcing FBAR penalties involving Foreign Bank and Financial Account Reporting (aka “FBAR” or “FinCEN Form 114) violations against taxpayers (account holders) who are out of compliance.
In general, the Internal Revenue Service has become more aggressive in Offshore penalties when a taxpayer is caught having committed a foreign account violation.
More than ever in the past, the U.S. Government has taken formal legal action against account holders in Federal District court — here are some of the recent FBAR Penalty Cases.
31 U.S.C. §5314(a) directs the Secretary to require residents or citizens of the United States, or a person in and doing business in the United States, to keep records and/or file reports when the person makes a transaction or maintains a relationship with a foreign financial agency.
Section 5314(b) authorizes the Secretary of the Treasury to carry out this mandate by issuing regulations prescribing the application of the reporting requirements, including to whom the requirements apply.
The assessment process for FBAR Penalties is complex. This is primarily due to the fact that enforcement is under U.S.C. Title 31 not U.S.C. Title 36. An FBAR violation penalty can range from a warning letter in lieu of penalty, all the way up to $100,000 minimum willful FBAR penalty. The Internal Revenue Service has developed numerous offshore voluntary disclosure options to achieve FBAR and tax amnesty.
The FBAR Penalty will be either a Civil FBAR Penalty and/or Criminal FBAR Penalty.
They can then be broken down further, but the threshold question, is whether the IRS will get you for Civil (money) or Criminal (money, and worse).
The civil FBAR penalty is limited to monetary penalties. A civil FBAR Penalty is a penalty that is focused on monetary fines or warning letters (waivers) — without any risk of criminal investigation or prosecution.
The non-willful FBAR penalties are typically the least severe penalties — but still pretty bad.
An FBAR non-willful penalty is a “lower-level” penalty for not filing the FBAR. The non-willful penalties can be high, BUT, typically they are not as high as willful penalties.
The Willful FBAR Penalty is typically more severe. An FBAR Willful Penalty is penalty for acting willful, willfully blind, or with reckless disregard in not filing the FBAR.
FBAR Penalties that are criminal may include monetary penalties and incarceration.
This is when the IRS refers the matter to the Department of Justice (DOJ) or other 3 letter government faction for criminal investigation and possible prosecution.
These are not very common, but unfortunately they are on the rise.
FBAR penalties can be dealt with. The IRS has developed various voluntary disclosure “amnesty” programs to assist U.S. persons with getting into compliance and limiting — or even avoiding — FBAR violations.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have all the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post What are FBAR Penalties? appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>FBAR and FATCA
FBAR & FATCA: When it comes to International Tax, the IRS has developed many, many acronyms. Two of the most common acronyms are FBAR & FATCA. FBAR is Foreign Bank Account Reporting aka Foreign Bank and Financial Account Reporting (FinCEN Form 114). FATCA is the Foreign Account Tax Compliance Act.
FBAR has been around since the 1970s and was developed as part of the U.S. Anti-Money Laundering Regime (AML).
FATCA was developed in or about 2010, with the goal of reducing and eliminating offshore tax evasion. More than 110 countries and over 300,000 Foreign Financial Institutions (FFIs) have entered into FATCA Agreements, otherwise referred to as IGAs.
The following is a case study example of how individuals can get stuck in the FBAR/FATCA matrix:
David is a U.S. Legal Permanent Resident (Green Card Holder or LPR Status) and Chinese Citizen who currently resides in the United States.
He has had his Green Card for nearly 20 years and alternates between living in the United States and living abroad.
He has numerous accounts worldwide with upwards of $1-$3 million at any given time. The money is scattered amongst different accounts, including Investment Accounts, Banking Accounts, Mutual Funds, and Insurance Policies.
Although David’s primary residence is in the United States, when he opened up his foreign bank accounts he used an address in Hong Kong as his main address.
In addition, since he is a Chinese citizen, David did not disclose that he is a US Resident for Tax Purposes when he opened the accounts. (In other words, he does not complete a W-9).
Recently, David’s wife, Irene (who resides primarily in Hong Kong) informs David that they received a FATCA Letter at their home from the foreign financial institution. The letter requests that David and his wife (as a Green Card Holder) confirm their US residence status.
After combing through different expat forums, they decide to do nothing.
Multiple foreign banks have already provided the IRS with David and Irene’s information regarding their foreign accounts as part of their standard FATCA and CRS reporting process.
Unfortunately for David and Irene, they had already been selected for audit on an unrelated matter at around the same time that the IRS received the notice from Hong Kong. Specifically, David and Irene were being audited because of deductions taken as part of a consulting business they operate.
David and Irene are audited by the IRS.
They receive a notice from the IRS in the form of a Request for Documents (IDR) requesting various different documents. In addition, they are asked the name of their CPA or other tax preparer.
David and Irene believe they can talk their way out of the issue, and that because they reside overseas they will be fine. After doing more research, David realizes that Hong Kong entered into a IGA (Intergovernmental Agreement) with the United States and that his money overseas is subject to possible levy or seizure.
While in Hong Kong, David and Irene use a licensed CPA who prepared their taxes.
The CPA was aware that David and Irene had foreign accounts but did not put that information on the tax return. David and Irene were also aware of this but decided to roll the dice and take their chances.
They intentionally checked off “No” for Question 7 on Schedule B.
Therefore, David and Irene will not qualify for the Streamlined Program or make a claim for “Reasonable Cause.”
Instead, David and Irene are considered willful.
David and Irene are initially being audited for three years, so the total value of the penalty they could get hit with is 100% value of the foreign accounts — which is just the FBAR penalties.
Since David and Irene have more than $5000 of unreported foreign earnings, the amount of time the IRS has to audit them expands to six years.
And, if the IRS discovers the Fraud, there is no Statute of Limitations — and the IRS can go back and audit them as far as they would like.
If David and Irene decide that they are not going to pay the fine and just “hide out” in a foreign country, their ability to travel may be severely impaired.
That is because (working in conjunction with foreign countries) the United States could try to place a hold on David and Irene’s passports and/or ability to travel.
It could result in David and Irene losing their passport (if it is US-based) and/or be subject to a customs hold at the airport, and forced to answer questions from the US government.
Moreover, the U.S. could also deny the renewal of the Green Card or deny Naturalization, due to Tax Fraud and Evasion.
Since David and Irene had over $3 million of unreported foreign accounts at the time of Audit, nearly $100,000 in annual unreported foreign income, and used a CPA that also was in trouble, David and Irene may also receive a visit from the IRS Special Agents.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Generally, experienced attorneys in this field will have all the following credentials/experience:
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post FATCA and FBAR Case Study Example appeared first on International Tax Attorney | IRS Offshore Voluntary Disclosure.
]]>Singapore FBAR Penalty Case & Willfulness
Singapore FBAR Penalty Case & Willfulness: When it comes to IRS offshore compliance for matters involving FBAR & FATCA, the country of Singapore very commonly comes up in the conversation. That is because U.S. Persons with ties to Singapore will frequently have passive investments, including foreign life insurance, Bank accounts, UOB trusts and CPF.
In fact, the CPF is one of the few foreign provident funds that the Internal Revenue Service has issued some memoranda on, involving the taxation of the fund. According to the memoranda, IRS has determined both the contributions to the fund and growth within the fund are taxable – and do not qualify under 402.
Recently, the US government filed a complaint against the California couple with unreported accounts in Singapore.
Here’s a brief summary of U.S. v. H0 & Tay:
The complaint alleges that Defendants had ownership in foreign accounts in Singapore, as follows:
“Since approximately 1991, Mr. Ho has held an account at DBS Bank Ltd. in Singapore, account number ending in -911-1 (“DBS account”).
In approximately 2003, Ms. Tay was added as a joint account holder of the DBS account. For the years 2011, 2012, 2013 and 2014, Mr. Ho and Ms. Tay jointly owned and managed the DBS account, and each has personally used and profited from the funds in the account. Funds from the DBS account were used to pay for a life insurance policy on Mr. Ho’s life with Aviva Limited, a foreign insurance company.
In 2013 or 2014, Mr. Ho traveled to Singapore to open an account at OCBC Bank, account number ending in -9001 (“OCBC account”). The OCBC account was held in defendant Michael S. Ho’s name. Both Mr. Ho and Ms. Tay held a beneficial financial interest in the OCBC account, and/or had signatory authority over the OCBC account.
The OCBC account was used to facilitate the purchase of a rental property in Bangkok, Thailand.
In 2014, Mr. Ho deposited approximately $246,000 in U.S. dollars into the OCBC account.
During each of the years 2011, 2012, 2013, and 2014 the value of the DBS account exceeded $10,000 in U.S. currency, and both Mr. Ho and Ms. Tay were each separately required to report their interest in the DBS account on a timely filed FBAR for each of these years.
During the year 2014, the aggregate value of the DBS account and OCBC account exceeded $10,000 in U.S. currency, and both Mr. Ho and Ms. Tay were each separately required to report their interests in the DBS account and OCBC account on a timely filed FBAR for the 2014 calendar year.”
According to the complaint, both defendants had bank accounts in Singapore that met the threshold for reporting.
Moreover, there is also a rental property which was generating income and the accounts for both actively being used.
Moreover, one of the defendants was making deposits of U.S. currency into one of the accounts.
*When a person deposits US currency into a foreign account it tends to ding the IRS’s radar. While there is nothing inherently nefarious about making such a deposit, there is the perception that the person should also have an understanding of any U.S. requirements.
The Government also tossed in the fact that Defendant has a bachelor’s degree in accounting and finance from Edith Cowen College in Australia for good measure/
Of course, just having an accounting degree does not make a person a tax expert.
Many CPAs and accountants never practice tax at all.
Marking “no” on IRS Form 1040, Schedule B is oftentimes the catalyst for an FBAR investigation.
As further alleged in the complaint:
“Both Mr. Ho and Ms. Tay were required to file a Schedule B, Interest and Ordinary Dividends, to their Forms 1040 for each of the years 2011, 2012, 2013, and 2014.
Mr. Ho and Ms. Tay failed to attach the required Schedule B for the years 2011 and 2013.
For 2012, Mr. Ho and Ms. Tay filed a Schedule B, but falsely answered “no” to the first question on line 7a of Part III, Foreign Accounts and Trusts (“At any time during 2012, did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country? See instructions.”), indicating that each did not have any such interest or authority over a foreign account.
For 2014, Mr. Ho and Ms. Tay filed a Schedule B, but falsely answered “no” to the first question on line 7a of Part III, Foreign Accounts and Trusts (“At any time during 2014, did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country? See instructions.”), indicating that each did not have any such interest or authority over a foreign account.”
Defendants apparently made some misrepresentations during a tax audit(s).
This is a topic we have covered many times. Whether it is during an eggshell audit or regular tax audit, it is never advisable to intentionally misrepresent facts to the IRS Agent.
This goes double for matters involving “quiet disclosure.”
As further provided in the complaint:
“During an audit related to his 2009 Form 1040, Mr. Ho falsely stated that he did not have any foreign bank accounts, when in fact he jointly owned the DBS account with Ms. Tay.
On April 17, 2013, during an interview for an audit, Mr. Ho falsely stated to an IRS Revenue Agent that he did not have any assets or accounts in foreign countries.
On January 27, 2016, both Mr. Ho and Ms. Tay falsely stated to an IRS Revenue Agent that since coming to the United States, neither of them had any foreign accounts or businesses. Both had an interest in the foreign DBS account for over a decade, and had immigrated to the United States in or before 1994.
On October 26, 2016, a representative for Mr. Ho and Ms. Tay informed the IRS Revenue Agent conducting the audit of the existence of the DBS account and Mr. Ho and Ms. Tay’s joint ownership of that account.
On September 21, 2017, Mr. Ho and/or Ms. Tay disclosed the existence of the OCBC account to the IRS Revenue Agent conducting the audit.”
As a result of these facts, the government seeks willful penalties over for the non-compliance and alleged misrepresentations made during audit.
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