Archives For OVDP

Update 8//6/13: For more detailed and up-to-date information about offshore asset disclosures and foreign tax compliance, please refer to the following pages on our main website:

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You’ve probably heard a lot in the press over the past few years about offshore accounts, tax evasion, and wealthy individuals going to jail for having bank accounts in Switzerland or the Cayman Islands. However, what many people don’t realize is that the same laws which put these tax evaders in jail apply to ordinary citizens and residents – and have been around for many years. The Report of Foreign Bank and Financial Accounts (FBAR) requires taxpayers with accounts totaling more than $10,000 to file an annual report with the U.S. Treasury.  For taxpayers with offshore accounts totaling more than $50,000 during 2011, a brand new requirement came into effect – Form 8938 (Statement of Foreign Financial Assets). These and other requirements can subject those who don’t comply to civil penalties, criminal prosecution, and jail time.

The good news? The IRS knows that everyone isn’t a crook, and that many people had no idea that they were supposed to file. The IRS announced an Offshore Voluntary Disclosure Program (OVDP) in 2009, and an Offshore Voluntary Disclosure Initiative (OVDI) in 2011, which yielded more than $5 Billion in voluntary disclosures to date (see http://www.irs.gov/uac/IRS-Says-Offshore-Effort-Tops-$5-Billion,-Announces-New-Details-on-the-Voluntary-Disclosure-Program-and-Closing-of-Offshore-Loophole). These programs offered reduced civil monetary penalties for taxpayers coming forward with unreported accounts, and ensured that taxpayers would not face the FBAR criminal penalties. Due to the huge success of these programs (which are now closed), in 2012 the IRS announced a new OVDP with no announced deadline for taxpayers who still have not come forward under the prior two programs.

So how do you know if you had an FBAR filing requirement in the past? Well, you had to file an FBAR if:

1)      You were a United States “person” (which can include residents in the United States on a visa);

2)      You had a “financial interest” in, or “signatory authority” over any “financial account” in a foreign county or jurisdiction; and

3)      The total of all such foreign accounts exceeded $10,000 at any time (even for a day!) in a given year.

FBARs are due on June 30th of the following calendar year. Unlike income tax returns, there are no deadline extensions for filing your FBAR. This is why so many taxpayers have come forward under the OVDP and OVDI programs – they simply didn’t know they had an FBAR filing requirement until well after the deadline.

The terms of the 2012 OVDP offer penalties for the highest year of non-compliance (your “high-water mark” of foreign account values) at either 27.5%, 12.5%, or 5% of each account’s highest balance, along with normal tax-related penalties if you didn’t report foreign-earned income on your tax return.

If you don’t come forward, however, you could face a civil FBAR penalty of $10,000 per account, per year. You read that right. That means if you have 5 years and 20 accounts in each year, you could face a $1M FBAR penalty, even if all those accounts combined only held $11,000. Tack on the potential criminal penalties, and you’ll wish you had spent a little time and money up-front talking to a tax professional.

The bottom line: this is NOT an area of law where you want to go it alone. There are alternatives to the 2012 OVDP which may result in no criminal or civil penalties being asserted, and there are also defenses if the IRS tries to come after you. But wading through the quicksand that is the law in this area will be a lot more pleasant if you’re sitting on the shoulders of a competent attorney.

Written by Timothy Canney.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

 

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Bradley Birkenfeld, the former UBS banker credited with helping break open Uncle Sam’s investigation into secret untaxed Swiss accounts, is about to be $104 million richer.

The Internal Revenue Service has recommended that Birkenfeld receive that impressive amount after he has now served around two and a half years in federal prison for a fraud conspiracy conviction related to the case.

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It’s the largest whistleblower amount ever awarded by the IRS.

Birkenfeld’s insider info helped the IRS collect more than $5 billion in unpaid taxes from foreign banks and nearly 15,000 individuals who used their services to avoid paying U.S. taxes, as well as was a motivator in the Swiss government decision to change its tax treaty with the United States and turn over the names of more than 4,900 U.S. taxpayers who held illegal offshore accounts.

In addition, since the UBS investigation began, more than 35,000 taxpayers have participated in amnesty, or as the IRS prefers to call them offshore voluntary disclosure programs.

Ask and you could receive: The IRS didn’t agree to give Birkenfeld the reward out of the goodness of its heart. Rather, Birkenfeld did what any other tax cheat reporting taxpayer would do; he filed a reward claim with the tax agency.

Under federal law, a whistleblower could be entitled to a reward of between 15 percent and 30 percent of the total previously unpaid tax that is collected. There is no limit on the dollar amount that can be paid out to tax cheat reporters.

Birkenfeld’s lawyers released a redacted IRS summary award report that praised the former banker for providing comprehensive information that was “exceptional in both its breadth and depth.”

Birkenfeld was not in Washington, D.C., for today’s announcement of his award. He’s still serving three years’ probation under home confinement. His attorneys are seeking a presidential pardon for Birkenfeld.

Ratting out tax cheats: If you have information about someone or some company that is ingoing tax responsibilities, follow Birkenfeld’s lead. Well, at least the part about reporting the tax misdeeds.

If you suspect or know of an individual or company that is not complying with the tax laws, you may report this activity by completing Form 3949-A. You may fill out the form online, print it and mail it to the Internal Revenue Service in Fresno, CA 93888. (No street address necessary. The Post Office knows where to find the Fresno IRS office.)

If you prefer, you may send a letter instead of the form to the Fresno address. In that case, the IRS would like you to include, where possible, the following information:

  • Name and address of the person you are reporting,
  • The taxpayer identification number (Social Security number for an individual or employer identification number for a business),
  • A brief description of the alleged violation, including how you became aware of or obtained the information,
  • The years involved,
  • The estimated dollar amount of any unreported income, and
  • Your name, address and daytime telephone number.

The IRS says you don’t have to reveal your identity. But if information on a tax cheat entitles you to a reward, giving your name and contact info is the only way the IRS will know where to send the money.

You also can file Form 211 to request a whistleblower award. The IRS has more information at its special whistleblower award claim Web page.

Also check out the IRS memo on what to expect when providing the agency with information about tax evasion.

That system has improved over the years, but it still takes a while and requires the actual collection of substantial unpaid taxes before the IRS Whistleblower Office says thanks to tax tattletales with cash.

Still, under the right circumstances, the tax cheat reporting and wait can be very rewarding. Just ask Bradley Birkenfeld.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

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Keeping foreign accounts and income secret can be a huge mistake, as numerous prosecutions make clear.  The IRS is pushing for global disclosure and compliance, and at this point disclosure seems inevitable.

So if disclosure is inevitable, it is probably a good idea to fully understand and comprehend what is expected of you.  So here we go.

You must report your worldwide income on your U.S. income tax return. That’s true even if you live outside the U.S. or pay foreign taxes on your foreign income. Plus, if you have a foreign bank account you must check “yes” (on Schedule B).

In addition, all U.S. persons with foreign bank accounts exceeding $10,000 at any time during the year must file an FBAR by each June 30.

The penalty for failing to file is $10,000 for each non-willful violation. If willful, the penalty is the greater of $100,000 or 50% of the amount in the account for each violation. Each year you didn’t file an FBAR is a separate violation.

There is a new form to be aware of as well. Commencing with your 2011 tax return, you may also need to file an IRS Form 8938 to report your foreign accounts and assets.

OVDP Eligibility. Participating in the IRS Offshore Voluntary Disclosure Program (OVDP) is the best way out for many. But what if the IRS says you’re ineligible?  The items below were updated in late June, 2012 to list what could make you ineligible:

John Doe Summons or Treaty Request. The mere fact that the IRS served a John Doe summons, made a treaty request or took similar action does not make every member of the John Doe class or group identified in the treaty request or other action ineligible to participate. However, once the IRS or Department of Justice obtains information under a John Doe summons, treaty request or similar action that provides evidence of a specific taxpayer’s noncompliance with the tax laws or Title 31 reporting requirements, that taxpayer will become ineligible for OVDP.

Appealing Foreign Tax Decision About Disclosure. If a taxpayer appeals a foreign tax administrator’s decision authorizing the release of account information to the IRS, the taxpayer is required to serve notice of that appeal on the U.S. government. Of course, serving the notice may defeat the purpose of the appeal. Still, if the taxpayer fails to serve the notice, he is ineligible to participate in the OVDP.

Action Against Institutions. The IRS may announce that taxpayers with accounts at particular financial institutions are ineligible for OVDP due to U.S. government actions in connection with that institution. Such announcements will provide notice and the prospective date eligibility will end.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

Since the establishment of FBAR, FATCA, and OVDP, the IRS has cracked down on U.S. citizens who have foreign accounts or assets that have been unreported. The IRS has collected more than $5 billion in back taxes, interest, and penalties from over 33,000 taxpayers who participated in the offshore voluntary disclosure program (OVDP). A couple weeks ago, the IRS announced there are new rules regarding U.S. expats with dual citizenship who have been unfairly treated in the IRS’s crackdown of offshore accounts.

This relief will greatly help those middle-class expats who live in highly taxed countries like the UK and Canada. U.S. tax filers are required to disclose any foreign accounts they may own and how much income they received from each account. They must do this on Schedule B of their 1040 in addition to filing a FBAR (Report of Foreign Bank and Financial Account) with the U.S. Treasury. If you fail to do so, the U.S. treasury has the authority to confiscate everything in your foreign account plus additional penalties for not filing the FBAR.

The IRS said that beginning September 1, dual citizen expatriates and green card holders living abroad who owe less than $1,500 a year on unfiled 1040s will be qualified for special relief. They must only file three years of back tax returns and six years of back FBARS. However, they will not receive the FBAR penalty. Additionally, taxpayers with foreign retirement plans like the Canadian RRSPs (the Canadian IRA) can exclude the deferred income from their back returns.

For those currently in the OVDP, it is required to file amended tax returns for the previous eight years for any owed taxes and interest from foreign accounts. There is a 20% penalty on all back taxes owed. In addition, they must pay an FBAR penalty equal to 27.5% of the account’s highest balance during the previous eight years.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.