Report of Foreign Bank and Financial Accounts FINCEN Form 114

A Senior Citizen With Offshore Accounts in Panama Pleads Guilty | IRS News

On May 26, 2017, the IRS scored another victory against Offshore Accounts in Panama and again against a senior citizen. This time, Ms. Joyce Meads, a 73-years old Texas resident, pleaded guilty to conspiring to defraud the United States by using offshore accounts in Panama to conceal more than $1.3 million in royalty income that she earned from oil wells.

Offshore Accounts in Panama: Facts of the Meads Case

According to documents and information provided to the court, from approximately April of 1997 through April of 2010, Ms. Meads conspired with offshore promoters to disguise more than $1.3 million in royalty income (from oil wells) as scholarships and loans from a foreign corporation that she set up.

In particular, Ms. Meads set up nominee companies in Delaware and Panama in the name of W.G. Holdings Corporation. Then, she transferred her interest in the oil wells to the nominee entity in Delaware, which resulted in all of the royalty checks to be issued to W.G. Holdings and sent to a Miami post office box. The checks were picked up there and sent by a courier to Panama to be deposited into Ms. Meads’ nominee accounts. Later, as it was mentioned above, the funds were repatriated as scholarships or loans from W.G. Holdings to herself. Ultimately, the funds ended up on her bank accounts and the accounts that were opened in her mother’s name.

During all of the relevant years, Ms. Meads never reported her income on her tax returns. Nor did she ever file an FBAR with respect to her offshore account in Panama. As part of the guilty plea, Ms. Meads admitted that she caused a tax laws of more than $250,000.

The IRS identified the promoters who helped Ms. Meads in her conspiracy to evade taxes. They are Marc Harris of The Harris Organization, Republic of Panama, and Boyce Griffin of Offshore Management Alliance Ltd., Republic of Panama. Both of them have already been convicted of conspiracy and other charges and were previously sentenced to prison.

Offshore Accounts in Panama: Potential Jail Time and FBAR Penalties

The sentencing of Ms. Meads is scheduled for August 4, 2017. Ms. Meads faces a statutory maximum sentence of five years in prison, a period of supervised release, restitution and monetary penalties. The penalties will likely include not only income tax fraud penalties, but also FBAR penalties.

Offshore Accounts in Panama: Lessons from the Meads Case

The Meads case is a classic example of a situation that leads to an IRS criminal investigation. Let’s focus on three main factors here.

First, Ms. Meads was diverting pre-tax US-source income from the United States to an offshore tax shelter. Based just on this fact, the IRS has sufficient incentive to make an example of her. In fact, diverting US-source income to a tax shelter might be the most important factor that led to criminal penalties in this case.

Second, Ms. Meads utilized a shell corporations to hide her income. Involving foreign companies in a tax evasion scheme is a very common factor that leads to an IRS criminal investigation.

Finally, Ms. Meads utilized secret offshore accounts in Panama in her tax evasion scheme – accounts that she never disclosed on her FBARs. By doing so, she granted to the IRS a very powerful weapon in the form of draconian FBAR penalties, not just criminal but also civil. This means that the IRS had a trump card in court to force Ms. Meads to agree to a guilty plea. In other words, with FBAR penalties as a major negotiation weapon, the IRS feels confident to press with the criminal charges for the entire case. While in the Meads case proving the rest of the charges might not have been very difficult, this is not the situation in a lot of other cases.

Contact Sherayzen Law Office for Professional Help With Disclosing Your Offshore Accounts in Panama and Any Other Foreign Country

If you have undisclosed foreign accounts or any other foreign assets, contact Sherayzen Law Office as soon as possible. Time may be of the essence, because an IRS investigation may prevent you from participating in any of the main Offshore Voluntary Disclosure initiatives.

With Sherayzen Law Office, you can feel confident that expertise, experience and convenience is on your side! We have helped hundreds of US taxpayers around the world to bring their tax affairs into full compliance with US tax laws, and We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

IRS Wins Against a Lawyer’s Motion to Dismiss FBAR Penalties | FBAR Tax Lawyer

On May 3, 2017, the IRS scored an important victory in United States v. Little, 2017 U.S. Dist. LEXIS 67580 (SD NY 2017) by defeating a Motion to Dismiss FBAR charges made by the defendant, Mr. Michael Little. The motion was based on an argument that is often used by opponents of FBAR penalties – the unconstitutionality of the FBAR penalties based on a tax treaty and the vagueness of the FBAR requirement as applied to the defendant. While I do not intend to provide a comprehensive analysis of the Motion to Dismiss FBAR Charges and the reasons for its rejection, I do wish to outline certain important aspects of the judge’s opinion.

Brief Overview of Important Facts

The Motion to Dismiss FBAR Charges was made by Mr. Little, a UK citizen and a US permanent resident. Mr. Little was a UK lawyer who also became a US lawyer and practiced in New York. During this time, he helped Mr. Harry G.A. Seggerman’s heirs hide millions in offshore accounts. For his services, he was paid hundreds of thousands of dollars which were never disclosed to the IRS.

In 2012 and 2013, Mr. Little was charged with willful failure to file FBARs and his US tax returns. He was further charged with various crimes arising out of his alleged assistance to Mr. Seggerman’s heirs in a scheme to avoid the taxes due on their inheritance held in undeclared offshore accounts.

Motion to Dismiss FBAR Penalties Based on “Void for Vagueness” Standard

The key argument of the Motion to Dismiss FBAR Penalties was based on the so-called “Void for Vagueness” Standard. The court cited United States v. Rybicki, 354 F.3d 124, 129 (2d Cir. 2003) to define the standard as follows: “the void-for-vagueness doctrine requires that a penal statute define the criminal offense with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not encourage arbitrary and discriminatory enforcement.”

In the first part of the Motion to Dismiss FBAR Penalties, Mr. Little essentially argued that, in his circumstances, the application of the FBAR requirement was too vague due to the 2008 changes in the definition of the required FBAR filers, particularly with respect to exclusion of persons “in or doing business in the United States”.

The Court dismissed the argument stating that whatever was an issue with respect to “in or doing business” provision, a lawful alien resident of ordinary intelligence (whether or not he was “doing business in the United States”) would have understood that the FBAR requirement applied to him because the definition of the “United States resident” includes green card holders. Hence, the vagueness of the original FBAR definition was inapplicable to a lawful alien resident such as Mr. Little.

Motion to Dismiss FBAR Penalties and Other Criminal Counts: No Vagueness in Criminal Statutes Because Willfulness Must be Proven Beyond Reasonable Doubt

The Motion to Dismiss FBAR Penalties also contained several more “void for vagueness” arguments (related not just to FBARs, but also to Mr. Little’s failure to file US tax returns and his role as an “offshore account enabler”). Among these arguments, Mr. Little especially relied on several US-UK tax treaty provisions which led him to believe that he was not a US tax resident (in particular, he believed that he was in the United States temporarily and he interpreted the treaty as stating that he was not a US tax resident even though he had a green card).

The Court dismissed Mr. Little’s treaty-based arguments based on its interpretation of how a person of ordinary intelligence would have understood these provisions. Here, I wish to emphasize one of the most important parts of the decision – the affirmation that the worldwide income reporting requirement was not vague. The Court found that “the U.S. statutes and regulations that require alien lawful permanent residents (green card holders) to either (a) file a tax return and pay taxes on worldwide income, or (b) file a tax return reporting worldwide income and indicate that he or she is taking a particular protection under the Treaty, are not unconstitutionally vague as applied”.

The most interesting aspect of the Court’s decision, however, was in its last part. Here is where judge Castel dealt a death blow to all of Mr. Little’s void-for-vagueness arguments. The Court stated that, since a conviction can only be achieved if the government proves willfulness beyond reasonable doubt, none of the relevant criminal tax provisions (including criminal FBAR penalties) can be deemed as vague.

The reason for this conclusion is very logical – in order to prove willfulness, the government must establish that: “the defendant knew he was legally required to file tax returns or file an FBAR, and so knowing, intentionally did not do so with the knowledge that he was violating the law.” Obviously, if such knowledge and intention of the defendant are proven beyond the reasonable doubt, the defendant “cannot complain that he could be convicted for actions that he did not realize were unlawful”.

Motion to Dismiss FBAR Penalties Based on Vagueness Versus Non-Willfulness Arguments

It is important to emphasize that the vagueness arguments contained in Mr. Little’s Motion to Dismiss FBAR Penalties can still be utilized to establish the defendant’s non-willfulness even though the Motion to Dismiss was denied. In other words, while the void-for-vagueness arguments were insufficient to challenge the criminal tax provisions, they may be important in establishing the defendant’s subjective perception of these provisions and his non-willful inability to comply with them.

I believe that the defendant’s motion in this case was destined to be denied. In reality, the defendant might have made this motion not to win, but in order to establish the base for asserting the same arguments in a different context of undermining the government’s case for willfulness. The Court itself stated that one of the Defendant’s arguments (reliance on advice received from her Majesty’s Revenue and Customs”) was in reality a potential affirmative defense to failure to file US tax returns, not an argument against the constitutionality of the laws in question.

2016 FBAR Currency Conversion Rates | FBAR Lawyer and Attorney

Using proper currency conversion rates is a critical part of preparing 2016 FBAR and 2016 Form 8938. The instructions to both forms require (in case of Form 8938, this is the default choice) US taxpayers to use the 2016 FBAR Currency Conversion Rates published by the Treasury Department. The 2016 FBAR Currency Conversion Rates also serve other purposes beyond the preparation of the 2016 FBAR and Form 8938.

The 2016 FBAR Currency Conversion Rates are the December 31, 2016 rates officially published by the U.S. Department of Treasury (they are called “Treasury’s Financial Management Service rates” or the “FMS rates”) and they are the proper conversion rates that must be used while preparing FBAR and Form 8938.

Due to this importance of 2016 FBAR Currency Conversion Rates to US taxpayers, international tax lawyers and international tax accountants, Sherayzen Law Office provides the table below with the official 2016 FBAR Currency Conversion Rates (keep in mind, you still need to refer to the official website for any updates).

 

Country Currency Foreign Currency to $1.00
Afghanistan Afghani 66.5000
Albania Lek 128.2500
Algeria Dinar 110.0180
Angola Kwanza 170.0000
Antigua-Barbuda East Caribbean Dollar 2.7000
Argentina Peso 15.9030
Armenia Dram 480.0000
Australia Dollar 1.3850
Austria Euro 0.9490
Azerbaijan New Manat 1.8400
Bahamas Dollar 1.0000
Bahrain Dinar 0.3770
Bangladesh Taka 79.0000
Barbados Dollar 2.0200
Belarus New Ruble  1.9590
Belarus Ruble  19585.0000
Belgium Euro  0.9490
Belize Dollar 2.0000
Benin CFA Franc  625.1400
Bermuda Dollar 1.0000
Bolivia Boliviano  6.8700
Bosnia-Hercegovina Marka  1.8560
Botswana Pula  10.6720
Brazil Real  3.2530
Brunei Dollar  1.4450
Bulgaria Lev  1.8560
Burkina Faso CFA Franc  625.1400
Burma-Myanmar Kyat  1365.0000
Burundi Franc  1650.0000
Cambodia (Khmer) Riel 4103.0000
Cameroon CFA Franc  621.7300
Canada Dollar  1.3460
Cape Verde Escudo  104.7280
Cayman Islands Dollar 0.8200
Central African Republic CFA Franc  621.7300
Chad CFA Franc  621.7300
Chile Peso  668.8000
China Renminbi  6.9420
Colombia Peso 3001.5000
Comoros Franc  462.6500
Congo CFA Franc  621.7300
Congo, Dem. Rep Congolese Franc  1210.0000
Costa Rica Colon  546.0000
Cote D’Ivoire CFA Franc  625.1400
Croatia Kuna  7.0500
Cuba Peso 1.0000
Cyprus Euro  0.9490
Czech Republic Koruna  25.0450
Denmark Krone  7.0540
Djibouti Franc  177.0000
Dominican Republic Peso  46.5900
Ecuador Dolares 1.0000
Egypt Pound  18.0000
El Salvador Dolares 1.0000
Equatorial Guinea CFA Franc  621.7300
Eritrea Nakfa  15.0000
Estonia Euro  0.9490
Ethiopia Birr  22.4000
Euro Zone Euro  0.9490
Fiji Dollar  2.0730
Finland Euro  0.9490
France Euro  0.9490
Gabon CFA Franc  621.7300
Gambia Dalasi  44.0000
Georgia Lari  2.6600
Germany FRG Euro  0.9490
Ghana Cedi  4.2200
Greece Euro  0.9490
Grenada East Carribean Dollar 2.7000
Guatemala Quetzal  7.5220
Guinea Franc  9225.0000
Guinea Bissau CFA Franc  625.1400
Guyana Dollar  205.0000
Haiti Gourde  66.4600
Honduras Lempira  23.4000
Hong Kong Dollar  7.7560
Hungary Forint  293.7500
Iceland Krona  112.8700
India Rupee  67.8000
Indonesia Rupiah  13380.0000
Iran Rial  32376.0000
Iraq Dinar  1166.0000
Ireland Euro  0.9490
Israel Shekel  3.8410
Italy Euro  0.9490
Jamaica Dollar  128.0000
Japan Yen  117.0300
Jerusalem Shekel  3.8410
Jordan Dinar 0.7080
Kazakhstan Tenge  333.3000
Kenya Shilling  102.4500
Korea Won  1203.2100
Kuwait Dinar  0.3050
Kyrgyzstan Som  69.3000
Laos Kip  8170.0000
Latvia Euro  0.9490
Lebanon Pound 1500.0000
Lesotho South African Rand  13.7070
Liberia Dollar  91.0000
Libya Dinar  1.4380
Lithuania Euro  0.9490
Luxembourg Euro  0.9490
Macao Mop 8.0000
Macedonia FYROM Denar  58.1200
Madagascar Aria  3350.5400
Malawi Kwacha  747.0000
Malaysia Ringgit  4.4850
Mali CFA Franc  625.1400
Malta Euro  0.9490
Marshall Islands Dollar 1.0000
Martinique Euro  0.9490
Mauritania Ouguiya  355.0000
Mauritius Rupee  35.8700
Mexico New Peso  20.6520
Micronesia Dollar 1.0000
Moldova Leu  19.9000
Mongolia Tugrik  2489.5300
Montenegro Euro  0.9490
Morocco Dirham  10.1540
Mozambique Metical  70.8000
Namibia Dollar  13.7070
Nepal Rupee  108.7000
Netherlands Euro  0.9490
Netherlands Antilles Guilder 1.7800
New Zealand Dollar  1.4370
Nicaragua Cordoba  29.0500
Niger CFA Franc  625.1400
Nigeria Naira 304.2000
Norway Krone 8.6210
Oman Rial 0.3850
Pakistan Rupee  104.3500
Palau Dollar 1.0000
Panama Balboa 1.0000
Papua New Guinea Kina  3.1010
Paraguay Guarani  5755.0000
Peru Nuevo Sol  3.3570
Philippines Peso  49.5910
Poland Zloty  4.1850
Portugal Euro  0.9490
Qatar Riyal 3.6410
Romania Leu  4.3050
Russia Ruble  61.0220
Rwanda Franc  815.0000
Sao Tome & Principe Dobras 23556.0240
Saudi Arabia Riyal 3.7500
Senegal CFA Franc 625.1400
Serbia Dinar  117.1400
Seychelles Rupee  13.2190
Sierra Leone Leone  7451.0000
Singapore Dollar  1.4450
Slovak Republic Euro  0.9490
Slovenia Euro  0.9490
Solomon Islands Dollar  7.9370
South Africa Rand  13.7070
South Sudan Pound  80.0000
Spain Euro  0.9490
Sri Lanka Rupee  149.6000
St Lucia East Caribbean Dollar 2.7000
Sudan Pound  7.1000
Suriname Guilder  7.4850
Swaziland Lilangeni  13.7070
Sweden Krona  9.0630
Switzerland Franc  1.0190
Syria Pound  515.0000
Taiwan Dollar  32.4010
Tajikistan Somoni 7.8000
Tanzania Shilling  2178.0000
Thailand Baht  35.7700
Timor-Leste Dili 1.0000
Togo CFA Franc 625.1400
Tonga Pa’anga  2.1530
Trinidad & Tobago Dollar  6.6900
Tunisia Dinar  2.3010
Turkey Lira  3.5220
Turkmenistan Manat 3.4910
Uganda Shilling  3607.0000
Ukraine Hryvnia  27.0000
United Arab Emirates Dirham 3.6720
United Kingdom Pound Sterling  0.8120
Uruguay New Peso  29.0700
Uzbekistan Som  3286.0000
Vanuatu Vatu  111.8000
Venezuela New Bolivar  673.8300
Vietnam Dong  22770.0000
Western Samoa Tala  2.4960
Yemen Rial  250.5000
Zambia Kwacha (New)  9.9150
Zambia Kwacha  5455.0000
Zimbabwe Dollar 1.0000

1. Lesotho’s loti is pegged to South African Rand 1:1 basis
2. Macao is also spelled Macau: currency is Macanese pataka
3. Macedonia: due to the conflict over name with Greece, the official name if FYROM – Former Yugoslav Republic of Macedonia.

Related-Statute IRC §6103(h) Violation As a Defense Against FBAR Audit

International tax lawyers should focus not only on substantive, but also on procedural defenses against the results of an FBAR audit. One such potential defense against FBAR audit is a related-statute IRC §6103(h) violation.

Related-Statute IRC §6103(h) Violation: Background Information

In a previous article, I already discussed the fact that IRC §6103(a) limits somewhat the ability of the IRS to use tax returns in an IRS FBAR Audit, because IRC §6103(a) designates all tax return information as confidential. However, IRC §6103(h) provides a limited exception to IRC §6103(a) by allowing the IRS employees the disclosure of tax return information for the purposes of tax administration.

Under IRC §6103(b)(4), tax administration is interpreted broadly to cover administration, management and supervision of the Internal Revenue Code and “related statutes”. This means that, if the IRS determines that the Bank Secrecy Act (“BSA”) is a related statute for the purposes of a particular FBAR audit, it can release the tax return information to be used against the taxpayer.

The IRS will deem the BSA as a related statute only if there is a good-faith determination that a BSA violation was committed in furtherance of a Title 26 violation or if such a violation was part of a pattern of conduct that violated Title 26. See IRM 4.26.14.2.3 (07-24-2012). In other words, the tax violation and the FBAR violation has to be related in order for the IRS to disclose tax return information to be utilized in an IRS FBAR Audit.

Related-Statute IRC §6103(h) Violation: Procedural Aspects of Related-Statute Determination

The Internal Revenue Manual (“IRM”) sets forth very specific procedures for making a related-statute determination in the preparation of an IRS FBAR Audit. Generally, this is a two-step process.

First, the examiners are required to prepare a Form 13535, Foreign Bank and Financial Accounts Report Related Statute Memorandum, to establish why the IRS believes that an apparent FBAR violation was in furtherance of a Title 26 violation. Form 13535 must describe tangible objective factors and provide adequate documentation.

Then, Form 13535 goes to the examiner’s Territory Manager. The Territory manager should make his decision at that point. If he believes that the related-statute test was not met, tax returns and return information may not be disclosed for the purposes of starting an IRS FBAR Audit. On the other hand, if the Territory Manager determines that the apparent FBAR violation was in furtherance of a Title 26 violation, then all of the tax returns and tax return information will be released to the IRS agent who conducts the audit.

Can Related-Statute IRC §6103(h) Violation Be Utilized as a Defense in FBAR Audit?

We are now about to answer the question that is at the center of this article: if the IRS fails to follow the IRM procedures for related-party determination pursuant to IRC §6103(h), can it be used as a defense in FBAR Audit? Perhaps, the best way to answer the question above is to look at an analogy of whether the failure to follow IRM procedures for related-party determination under IRC §6103(h) can be utilized to support a claim for damages for unauthorized disclosure under IRC §7431.

Generally, the failure by the IRS to follow IRM procedures and make a related-party determination is likely to be insufficient to support a claim under IRC §7431. In Hom v. United States, 2013 U.S. Dist. LEXIS 142818, 2013-2 U.S. Tax Cas. (CCH) P50,529, 112 A.F.T.R.2d (RIA) 6271, 2013 WL 5442960 (N.D. Cal. 2013), aff’d, 645 Fed. Appx. 583, 2016 U.S. App. LEXIS 5528, 117 A.F.T.R.2d (RIA) 1119, 2016 WL 1161577 (9th Cir. Cal. 2016), the court held that the failure of the IRS to make a related-statute determination as required by the IRM did not provide the plaintiff with a claim for damages under IRC §7431. Rather, a plaintiff would have to prove that the failure to file an FBAR was clearly not in furtherance of a Title 26 violation – i.e. the plaintiff would have to prove that BSA was not a related statute in his case.

If we use this analogy, then it seems that the procedural failures by the IRS to follow the related-party determination under IRC §6103(h) would not be sufficient to be used as a defense in an IRS FBAR Audit. There is a possibility, however, that if the FBAR violation was clearly not related to Title 26, then it may be used as a defense to exclude evidence.

Contact Sherayzen Law Office for Help with Your FBAR Audit

If your FBARs are being audited by the IRS, contact Sherayzen Law Office for professional help. Sherayzen Law Office is an international tax law firm that is dedicated to helping businesses and individuals with their US international tax obligations, including FBARs. We have helped hundreds of US taxpayers around the world and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

FBAR Third-Party Verification and FATCA | FBAR Tax Lawyer Denver

There is an interesting relationship between the FBAR Third-Party Verification problem and the enaction of FATCA that I would like to explore in this brief article.

Lack of FBAR Third-Party Verification

FBAR is undoubtedly one of the most important information returns administered by the IRS. It is the reigning king with respect to reporting of foreign financial accounts. Its requirements are broad and easy to violate. Its penalty system is unmatched in severity by any form created pursuant to the Internal Revenue Code making FBAR also one of the most effective tax enforcement tools in the IRS enforced tax compliance arsenal.

Yet, as an information return (as opposed to a tax enforcement mechanism), FBAR suffers from a very important defect that has limited its use with respect to collection of information – there is no FBAR Third-Party Verification. In other words, no third parties (such as banks and other financial institutions) are required to submit any data to the IRS so that the IRS can verify the information provided on the filed FBARs.

The fact that there is no FBAR Third-Party Verification stands in stark contract with most other reports required by the Bank Secrecy Act (which created the FBAR). CTRs, CTRCs and Forms 8300 all require banks, casinos and specified businesses to verify the data submitted on these reports. This makes the FBAR the only self-reporting information return with no third-party verification.

Without the FBAR Third-Party Verification, there is no direct way for the IRS to determine whether the information submitted on FBARs is correct. Of course, the IRS can verify the information in an indirect way (such as a treaty request during an investigation of a particular individual or if the information was shared by a financial institution pursuant for some specific reason), but it can only be done with respect to specific taxpayers with significant allocation of resources to each case.

FATCA As a Way to Correct the Lack of FBAR Third-Party Verification

While the Foreign Account Tax Compliance Act (“FATCA”) was not specifically tied to the problems with FBAR, the lack of FBAR Third-Party Verification provided an additional incentive for the enaction of FATCA.

As explained above, the IRS needed to somehow resolve the FBAR problems and find a way to standardize the verification of the foreign account information so that it could be applicable to all US taxpayers. FATCA became the most effective solution. On the one hand, FATCA forced all taxpayers with specified foreign assets to file Forms 8938 with their tax returns, while, on the other hand, it required all foreign financial institutions to verity this data through submission of FATCA-related information on an annual basis.

In other words, FATCA solved the FBAR Third-Party Verification problem. From 2011 on, the IRS acquired valuable tools to fill-in the information gaps left by FBAR. Furthermore, the information collected through FATCA may now be used by the IRS to verify the FBAR information and pursue noncompliant taxpayers for FBAR violations based on the FBAR draconian penalty system.

Contact Sherayzen Law Office for Help with US Tax Compliance Concerning Foreign Bank and Financial Accounts

If you have undisclosed foreign bank and financial accounts, contact Sherayzen Law Office for professional help as soon as possible. Through FATCA third-party information verification, noncompliant US taxpayers are now at a historically-high risk of detection by the IRS. If this happens, they may be subject to extremely high FBAR penalties, including criminal penalties.

Sherayzen Law Office can help you! We have successfully resolved hundreds of FBAR noncompliance cases for US taxpayers residing all over the world. Contact Us Today to Schedule Your Confidential Consultation!