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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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Raise your hand if you decided to get an extension on your taxes and keep them raised so I can count.  Okay, the final count is 11 million taxpayers who did not file returns in April. And just in case you were not aware, your time is almost up.

OK, not all of you are procrastinating until the absolute final Oct. 15 due date. You, like Mitt Romney, didn’t need the full six months to finish your Form 1040.

But there still are plenty of you — the Internal Revenue Service’s official count is “many” — are going down to the wire.

That begs the question Why wait?

Maybe you didn’t have all the forms you needed, maybe you were worried about a particular tax claim and maybe you just didn’t want to mess with taxes back then.

Well, those excuses reasons won’t hold up after next Monday. And that’s just seven days away. So maybe you should get on that.

Seriously, don’t miss it.

Deadline looming: You’ve got until midnight next Monday to submit your return electronically.

If you are still clinging to paper forms, your deadline is your post office’s closing time. To be timely filed in the IRS’ eyes, your envelope containing your tax return must be postmarked Oct. 15.

If you miss the deadline and didn’t pay your full tax bill when you got your extension, then the IRS will be adding penalties and interest to your bill.

Of course, if you don’t owe, no worries. Late-filing charges are based on your due tax and no debt, no added charges. Still, you need to get the forms to Uncle Sam.

And if you’re getting a refund, well what are you still waiting for? You won’t get that money until the IRS gets your 1040.

Gather your papers: To finish your filing, you’ll need all the statements that you got earlier this year. These are, for the most part, W-2 and 1099 forms.

Don’t overlook any of them. Remember, the IRS gets copies and it will be checking to ensure that you are reporting what the tax agency already knows.

And don’t forget that some of the documents might be on your computer. A lot of employers, financial institutions and brokers have gone digital.

So check your email. But realize that that’s just a first step.

The documents, such as earnings on a mutual fund or your mortgage lender’s statement detailing the mortgage interest and property taxes paid on your behalf by that financial institution last year, won’t likely be in your electronic mailbox. What you’ll find is a notice (or two or…) that the tax docs are ready for you to download.

Go to those websites this week so that if you need help accessing them, someone will be around to help you do that.

Once you get all this info, then you’re ready to plug the amounts into your 1040.

OK, that’s a good final filing start. Expect more tips on the countdown to Oct. 15.

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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College football fans are all abuzz about the NCAA penalties handed down against Penn State University.

As in most things sports, and especially at the ultra-emotional college level, the reactions from both sides are loud and clear.

Mark Emmert, who’s been in charge of the NCAA for just over two years, has sent a strong message that putting a football or any sports program ahead of human decency is no longer acceptable.

“One of the grave dangers stemming from our love of sports is that the sports themselves become too big to fail, indeed, too big to even challenge,” Emmert said in announcing the Penn State sanctions.

Emmert’s ruling undercuts the belief by arrogant universities that they will be the ones who are given a perpetual pass. Now that Penn State’s been whacked, it will be much easier to penalize future violators.

As to the complaint that the wrong people will pay the price, you’re correct.

Penn State’s “culture of concealment” cited by the Freeh Report, which the university itself commissioned and accepted, is gone but current students and athletes will suffer.

So who is really being punished?

With a nearly $4.3 billion operating budget, Pennsylvania State University has the financial capacity to absorb the $60 million fine assessed by the NCAA over five years without devastation, experts say.

And that’s even with university president Rodney Erickson’s assurances Monday that no tuition or tax dollars would be used to cover the penalty handed down as punishment for the school’s failure to act on child sex-abuse allegations against a former assistant football coach.

However, this will still have a negative effect on both current and former student of the university. Unfortunately that’s how punishments tend to work. Someone commits a crime or violates a rule and even if they don’t get caught and penalized, the rules are tweaked to make commission of future crimes harder and the penalties tougher for those who insist on continuing to try to avoid the rules.

Essentially, we all pay a price for someone else’s transgressions.

So why as a tax blogger with no connection at all to Penn State, are we spending so much time on this topic?

Because the general circumstances also relate to taxes, where tax-abusing sins of the fathers are routinely paid for via bigger checks to the U.S. Treasury by their children.

When taxpayers figure out a way to circumvent a tax law, tighter eligibility rules are created for future potential tax law breakers.

A tax benefit that once was relatively easy for some to get is ended or made harder to claim.

And in the case of criminal tax evasion, tougher penalties are often enacted for those who continue to try to get around the laws.

Welcome to the real world. They got away with it. We pay.

The tax arena also is almost as competitive as sports fields when it comes to protecting home field advantages. Specific individuals and industries have long taken advantage of tax laws and they are loathe to let them go.

This decided culture of tax entitlement comes from legislative pandering, especially in election years, particularly for “too big to fail” taxpayer sectors … or those which write too big not to cash campaign checks.

The bottom line is that once a tax break is put on the books, it’s damn nigh impossible to get rid of it.

Let’s hope that Representatives, Senators and the President will take a cue from Emmert and the NCAA and say enough is enough when it comes to entrenched, complicated and costly tax breaks that benefit too few taxpayers.

Let’s hope that Representatives, Senators and the President will take a cue from Emmert and the NCAA and say enough is enough when it comes to entrenched, complicated and costly tax breaks that benefit too few taxpayers.

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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The Report of Foreign Bank and Financial Accounts, Treasury Form TD F 90-22.1, or FBAR, has emerged from the dusty stacks of federal form oblivion onto the front page.  If you have foreign bank accounts holding more than $10,000 in the aggregate any time during the tax year, you can face big penalties or even jail.

If you haven’t disclosed your foreign account on your tax return and haven’t previously filed FBARs, should you?  If you are in the process of coming clean with your foreign accounts under the OVDI, the answer appears to be yes.  Even if you’ve only done a pre-clearance, you should still file your FBAR.

But what if you won’t make a voluntary disclosure under the OVDI?  First, examine your assumptions.  It may be shortsighted not to join the OVDI.

Second, consider the alternatives and your facts.  Starting to file FBARs now can appear to be a quiet disclosure something the IRS discourages.  Here are some variables:

Did You Report All Income?

If you reported all income from your foreign account(s) and paid additional taxes (for example, because of foreign tax credits), filing an FBAR is less risky.  In fact, the 2011 FAQs explicitly state that such filers are not required to enter the OVDI.  In that case your tax returns might not have to be amended.

Arguably your sole failure was to file FBARs, so starting to file now makes sense.  The IRS could assess penalties for past failure to file FBARs, but you could explain and dispute the penalties.  Alternatively, you could explain with your first FBAR that you previously were not aware of filing requirements.

Did You Check the Foreign Account Box?

Another variable is whether you previously disclosed the existence of your foreign account(s) on your tax return, even though you didn’t file FBARs.  If you appropriately included foreign income on the income tax return, you shouldn’t need to file amended tax returns.

It’s less clear what to do if you checked the “no” box on Schedule B to your tax return saying you don’t  have any foreign accounts, or if you didn’t check either box.  That makes your returns inaccurate and gives you more exposure.  Most advisers would say that if you still wouldn’t owe more U.S. tax, you should file the current year FBAR.

If you didn’t disclose the account on your tax returns and owe tax from the past, you face a tough choice.  Staying hidden forever seems unlikely and is highly risky.  But if you file your first FBAR and the IRS asks for past FBARs and asks questions about your past returns, you cannot lie.  The choices are tough enough that you should get advice from an experienced tax lawyer.

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.

For those of you who pay another person or organization to prepare your tax return, the IRS urges you to choose that preparer wisely. Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. So, it is important to choose carefully when hiring an individual or firm to prepare your return. Now most return preparers are professional, honest and provide excellent service to their clients, but it is important to take precaution.

Here are a few points to keep in mind when choosing someone else to prepare your return:

  1. Check the person’s qualifications. Ask if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.  New regulations require all paid tax return preparers including attorneys, CPAs and enrolled agents to apply for a Preparer Tax Identification Number, so ask them for theirs, just to be safe.
  2. Check on the preparer’s history. Check to see if the preparer has a questionable history with the Better      Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Professional Responsibility for enrolled agents.
  3. Find out about their service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers.
  4. Make sure the tax preparer is accessible. Make sure you will be able to contact the tax preparer after the return has been filed, even after  the April due date, in case questions arise.
  5. Provide all records and receipts needed to prepare your return. Most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.
  6. Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.
  7. Review the entire return before signing it. Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.
  8. Make sure the preparer signs the form and includes their PTIN. A paid preparer must sign the return and include their PTIN as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return. The preparer must also give you a copy of the return.

You can report abusive tax preparers and suspected tax fraud to the IRS on Form 3949-A.

If you do end up receiving penalties on your tax return and you had it filed based on the advice of a tax professional you can get out of the penalties if you can prove that:

  • the adviser was a competent professional with sufficient expertise;
  • the taxpayer provided necessary and accurate information to the adviser; and
  • the taxpayer actually relied in good faith on the adviser’s judgment.

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.