Report of Foreign Bank and Financial Accounts FINCEN Form 114

Streamlined Submission Audit | SDOP Audit Tax Lawyer

An increasing number of submissions under the Streamlined Domestic Offshore Procedures are subject to an IRS audit (hereinafter “Streamlined Submission Audit”). In this article, I will explain what a Streamlined Submission Audit is and what a taxpayer should expect during the Audit.

Streamlined Submission Audit: Background Information on Streamlined Domestic Offshore Procedures

Streamlined Domestic Offshore Procedures (“SDOP”) is a voluntary disclosure option offered by the IRS since June of 2014 to noncompliant US taxpayers to settle their past tax noncompliance concerning foreign assets and foreign income at a reduced penalty rate. In order to participate in SDOP, a taxpayer must meet three main eligibility requirements – US tax residency, non-willfulness of prior noncompliance and absence of IRS examination.

SDOP is likely to be the most convenient and the least expensive voluntary disclosure option for taxpayers whose prior tax noncompliance was non-willful. SDOP is very popular; in fact, it has quickly surpassed the traditional IRS Offshore Voluntary Disclosure Program (“OVDP”) in the number of participants with over 18,000 submissions just in 2016.

The Origin of the Streamlined Submission Audit

Streamlined Submission Audit originates within the very nature of SDOP. Unlike OVDP, SDOP voluntary disclosures are not immediately subject to a comprehensive IRS review of tax return items (although, there is a review process which may lead to a Streamlined Submission Audit, but it is not as comprehensive as that of the OVDP prior to the Audit). Hence, the IRS reserved the right to audit any SDOP submission at any point within three years after the submission of the original SDOP voluntary disclosure package.

Streamlined Submission Audit: Process

The exact process of a Streamlined Submission Audit varies from case to case, but all of such audits have a similar format: initial letter with request for a meeting, meeting with an interview, review of submitted documents and (very likely) additional requests for information, interview of other involved individuals (such as a tax preparer) and, finally, the results of an audit are provided by the IRS to taxpayer(s) and/or the representative indicated on Form 2848.

A Streamlined Submission Audit commences in a way very similar to a regular IRS audit: a letter is sent to taxpayers and (if there is a Form 2848 on file) to their representative. The letter explains that the IRS decided to examine certain tax returns (usually all three years of amended tax returns) and asks for submission of all documentation and work papers that were used to prepare the amended returns. Additionally, the letter requests that the taxpayers’ representative (or taxpayers if not represented) contact the IRS agent in charge of the audit to schedule the initial meeting.

During the initial meeting, the IRS agent will review (at least to make sure he or she has what is needed) the documents supplied. In larger cases, the IRS will need a lot more time to later examine all of the submitted documents and see if additional documents are needed. If a case is very small, it is possible for an agent to cover everything in the first meeting, but it is very rare.

Also, during an initial meeting, there is going to be an interview of the taxpayer(s). I will discuss the interview separately in a different article.

Once the review of the initial package of documents is concluded, it is very likely that the IRS agent will have questions and additional document requests. The questions may be answered by the taxpayers’ attorney during a separate meeting with the agent; smaller questions may be settled over the phone.

If additional documentation is needed, an IRS agent will send out an additional request to taxpayers and/or their attorney. The answer will most likely need to be provided in writing.

Once the IRS completes its interview of other involved parties and reviews all evidence, it will make its decision and submit the results of the audit to the taxpayers and their tax attorney in writing. The taxpayers’ attorney will need to build a strategy with respect to the taxpayers’ response to the audit results depending on whether the taxpayers agree or disagree with the results of the audit.

Differences Between Streamlined Submission Audit and Regular IRS Audit

At first, it may seem that there are no big differences between a regular IRS audit and a Streamlined Submission Audit. While procedurally this may be correct, substantively it is not.

The greatest difference between the two types of IRS audits is the subject-matter involved. While a regular IRS audit will concentrate on the tax returns only, a Streamlined Submission Audit will involve everything: amended tax returns, FBARs, other information returns and, most importantly, Non-Willfulness Certification. In other words, a Streamlined Submission Audit will focus not only on whether the tax forms are correct, but also on whether the taxpayer was actually non-willful with respect to his prior tax noncompliance.

This difference in the subject-matter examination will carry over to other aspects of a Streamlined Submission Audit: the taxpayers’ interview will focus on their non-willfulness arguments, third-party interviews of original tax preparers become a regular feature (this is very different from a regular IRS audit when tax preparers may never be interviewed), and the final IRS results must necessarily make a decision on whether to challenge the taxpayers’ non-willfulness arguments.

Failure by a taxpayer to sustain his non-willfulness arguments may result in a disaster during a Streamlined Submission Audit with a potential referral to the Tax Division of the US Department of Justice for a criminal investigation.

This is why it is so important for a taxpayer subject to a Streamlined Submission Audit to retain the services of an experienced international tax lawyer to handle the audit professionally.

Contact Sherayzen Law Office for Professional Help With A Streamlined Submission Audit

If your submission under the Streamlined Domestic Offshore Procedures is being audited by the IRS, you need to contact Sherayzen Law Office as soon as possible. Our international tax law firm is highly experienced in offshore voluntary disclosures (including OVDP, SDOP, SFOP, “noisy disclosures”, “quiet disclosures”, et cetera) and the IRS audits of a voluntary disclosure.
In fact, we have handled voluntary disclosure cases at every stage of the process of a Streamlined Submission Audit described above. We can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

Manafort FBAR Violations Indictment | International Tax Lawyer & Attorney

On October 30, 2017, Mr. Paul Manafort was charged with FBAR violations among other charges. Manafort FBAR violations charges were filed as a result of an ongoing investigation led by special counsel Robert Mueller.

While the investigation should have been searching for possible ties between Mr. Manafort and the Russian government, it found something completely different. Instead of finding any ties to the Russians, it found that Mr. Manafort was lobbying on behalf of the Ukrainian government (currently the archenemy of Russia and involved in a civil war with its eastern provinces) without registering as a foreign agent.

Moreover, it has led to the IRS Criminal Investigation with respect to Mr. Manafort’s FBAR noncompliance. Let’s explore this part of the investigation in more detail.

Manafort FBAR Violations Indictment: Alleged Facts

According to the indictment, Manafort failed to report his interest in over a dozen foreign entities, primarily in Cyprus, and used those entities to hide millions of dollars in foreign bank accounts from the U.S. government. Over $75 million allegedly flowed through the accounts, but only a portion of it was accessed. Manafort was accused of using over $18 million of proceeds on personal expenses.

The government further alleges that, during 2008-2014, Mr. Manafort falsely stated on his tax returns that he did not have an authority over any foreign bank accounts (I believe the reference here is to Part III of Schedule B, Form 1040).

Furthermore, the government claims that Mr. Manafort lied, in writing, to Mr. Manafort’s tax return preparer in order to conceal his authority over the undisclosed foreign accounts. It is obvious that this accusation is meant to preempt the reasonable cause reliance defense against FBAR penalties.

The indictment includes seven counts of willful FBAR violations under 31 U.S.C. section 5322. It is possible that Mr. Manafort may try to throw out some of the counts on the basis of the FBAR Statute of Limitations, but not all facts of the case are known at this point to estimate the success of this defense.

Manafort FBAR Violations Indictment: No Tax Evasion Charges

It is very strange, but the indictment does not contain a separate tax evasion charge, which requires the approval of the DOJ’s Tax Division. This omission is even more puzzling in light of the fact that the government alleges in its indictment that Mr. Manafort did not pay taxes on any income related to undisclosed foreign accounts. The government even specifically states that he purchased properties in Virginia and took out loans for the purpose of having access to untaxed income.

Manafort FBAR Violations Indictment: How Was $18 Million Calculated

The Manafort case is very good in one aspect: it allows us to see the government methodology for identifying potential willful FBAR violations. The main tool in this case was the government’s analysis of Mr. Manafort’s lifestyle.

The government alleged that, between 2008 and 2014, Mr. Manafort made domestic expenses of close to $18 million dollars which the government believes came from undisclosed foreign bank accounts and should be directly tied to Mr. Manafort FBAR violations. Most of this money was spent on improving real estate as well as purchases at antique shops, car dealerships and so on.

Manafort FBAR Violations Indictment: A Political Case With Important Lessons

It is important to remember that, at this point, these are merely government allegations and Mr. Manafort is presumed to be innocent until found otherwise by a court of law or a jury. While it is too early to state whether the government can prove its allegations and the case does have a very strong political background, it is still important to study the lessons of this case with respect to the government’s ability to pursue FBAR violations. The government’s methodology in this case is somewhat unusual, and all international tax lawyers should follow this case closely to see how the courts react to the government’s strategy.

2018 FBAR Audits Set to Increase | IRS FBAR Audit Lawyer & Attorney

2018 FBAR audits are set to increase at a dramatic pace. In this article, I would like to discuss what the FBAR audits are and why 2017-2018 will be the period of time when we believe that the FBAR audits will gain as a percentage of the overall IRS audits compared to earlier years.

2018 FBAR Audits and Sherayzen Law Office Predictions

As early as 2011, Sherayzen Law Office predicted that the FBAR audits would become more commonplace than ever a few years after FATCA was implemented. Once FATCA was implemented in July of 2014, we confirmed our prediction and refined it to specifically identify 2017 and 2018 FBAR audits as the years of larger than average increases. Obviously, the increase in FBAR audits will go hand in hand with the jump in FBAR litigation by the US Department of Justice.

2018_FBAR_Audits[1]

2018 FBAR Audits: How Do FBAR Audits Differ from Regular IRS Audits?

The public is generally familiar to a certain degree with regular IRS Audits of US tax returns. In general, in a regular audit, the IRS contacts the taxpayer or his representative and conducts a thorough review of the taxpayer’s tax returns selected for examination.

So, are FBAR Audits different from the regular US tax return audits? The answer is: “yes” and “no”. In terms of the actual procedure (i.e. the IRS contacting the taxpayer and the taxpayer’s representative and doing a thorough examination), there are no large differences, though, the fact that FBARs come under Title 31 does affect certain procedures.

However, in terms of issues involved, the FBAR audits can be vastly different, because they would involve not only the issues that are a concern during a regular IRS audit of a tax return, but also FBAR-specific issues. In other words, the FBAR audit will likely involve all of the features of the audit concerning US tax returns (especially, with respect to verification that all foreign income was properly disclosed) and FBAR -specific issues concerning the accuracy of the reported foreign account and foreign income information.

Moreover, it should be remembered that FBAR has a draconian penalty system. Hence, the stakes in the FBAR audit are much higher than those of a regular IRS audit.

Finally, FBAR audits may often lead to FATCA compliance issues, particularly Form 8938 compliance. FBAR audits may also trigger the audit of other information returns, including Form 3520 with respect to foreign gifts and inheritance.

Thus, while FBAR audits may seem procedurally similar to regular IRS audits (though, as I had pointed out above, this similarity is superficial to a large degree), the scope of the FBAR audit, the issues involved, the “expansion” effect and the stakes involved (in terms of potential penalties) make FBAR audits far more dangerous to US taxpayers than regular IRS audits of US tax returns.

Why Should We Expect to See An Increase in 2017 and 2018 FBAR Audits?

The increase in 2017 and 2018 FBAR audits is driven primarily by FATCA and other automatic information exchange mechanisms (including those provided for in bilateral treaties). Since the UBS case in 2008, the IRS has seen a steady increase of data inflow from overseas concerning foreign accounts owned and/or controlled by US taxpayers.

This stream of data became a torrential river after the implementation of FATCA in 2014 and the increase in the bilateral and multilateral automatic information exchange mechanisms since 2011. In fact, the IRS has received so much data that it has not even been able to properly process and organize it yet.

However, even with the small percentage of the data that was actually properly processed, the IRS received a treasure trove of information concerning unreported foreign accounts and noncompliant US taxpayers. This new data has already led to a steady increase of IRS investigations during the years 2015-2016. Given the fact that a much larger amount of data will be processed in 2017 and 2018, the number of IRS investigations and FBAR audits should increase dramatically in 2017-2019.

An indirect confirmation of this conclusion is the recent surge in the US Department of Justice FBAR litigation. We fully expect the FBAR audits to follow the same path of intensification in 2017-2019.

What Should You Do If the IRS Selects You for FBAR Audit?

If the IRS contacts you concerning examination of your FBARs or your US tax returns with Forms 8938 and/or foreign income, you should contact Sherayzen Law Office for professional help as soon as possible. Our firm specializes in helping taxpayers like you with the IRS audits of any US international information returns, including FBARs and Forms 8938.

The owner of Sherayzen Law Office, Mr. Eugene Sherayzen, is an international tax attorney with an almost unique experience of helping US taxpayers at all stages of US international tax compliance: annual compliance, offshore voluntary disclosures, FBAR Audits and FBAR litigation in federal courts. This experience has allowed Mr. Sherayzen to have a unique perspective on FBAR Audits which allows him to be a highly effective advocate of his clients’ positions before the IRS.

Contact Us Today to Schedule Your Confidential Consultation!

FBAR Safe Deposit Box Reporting | FBAR Tax Lawyer & Attorney

One of the most common questions that US taxpayers have is regarding FBAR Safe Deposit Box reporting requirements. While the general answer is clear, there may be complications in certain cases.

General FBAR Safe Deposit Box Reporting Requirements

In general, a safe deposit box is not considered to be a financial account and, therefore, not reportable on FBAR.

This is a general rule and it is important to understand that it applies only to a safe deposit box – i.e. an individually secured container, usually held within a larger safe or bank vault. It is important to understand that the bank vault itself is NOT a safe deposit box. In fact, if you were to store gold in a bank vault with bank employees able to directly and legally access the contents of your storage, you would create a reportable account.

The most common example of accounts created by storing items in a bank vault are precious metals, particularly gold and silver (but also any other similar accounts, such as rare minerals accounts).

Exception: FBAR Safe Deposit Box Reporting May Arise If Custodial Relationship Is Established With Respect to the Safe Deposit Box

The great majority of cases are easily resolved under the general rule. However, as I hinted at above, an FBAR safe deposit box reporting requirement may arise if the owner of a safe deposit box enters into a custodial relationship with respect to this safe deposit box.

In such situations, a foreign financial institution is usually given direct legal access to the safe deposit box, is responsible for the safety of its contents and may change the contents according to the instructions from the box’s owner. Of course, in such a case, a safe deposit box can hardly be called in such a way and becomes very similar to a regular bank vault account.

This exception is very rare. I have personally encountered such exceptions only in the context of precious metals accounts.

Contact Sherayzen Law Office for Professional Help With Your FBAR Reporting Requirements

If you need professional help with your FBAR filings, or if you have not timely filed your FBARs for past years and need to resolve your past tax noncompliance, please contact Sherayzen Law Office. Our experienced legal team of tax professionals, headed by our international tax attorney Eugene Sherayzen, will thoroughly analyze your case, determine the US tax reporting requirements that may apply to your case, develop your voluntary disclosure plan and implement it.

Contact Us Today to Schedule Your Confidential Consultation!

FBAR Litigation to Skyrocket in 2017 & 2018 | FBAR Lawyer & Attorney

After the implementation of FATCA in 2014, Sherayzen Law Office made a prediction that there would be a major increase in FBAR litigation a few years later once the IRS is able to process data obtained through FATCA and the Swiss Bank Program. This prediction is now becoming a reality as the US Department of Justice (“DOJ”) is filing lawsuits related to FBAR penalties in unprecedented numbers.

When Should the Taxpayers Expect to See Increase in FBAR Litigation?

The process has already started. The DOJ is already filing new FBAR litigation cases and it is working closely with the IRS to prepare a large number of additional FBAR cases.

In fact, the second half of 2017 and the first half of 2018 will be the period when the number of FBAR litigation cases will skyrocket, achieving a new historical high. Most of these lawsuits will likely be criminal while others will be civil, including attempts to collect FBAR penalties.

Will Non-Willful FBAR Penalty Cases Be Affected by the Increase in FBAR Litigation?

Yes, taxpayers who were assessed non-willful FBAR penalties will also be affected. We expect, however, that the majority of the new cases will be those concerning willful and even criminal FBAR penalties.

Can a Non-Willful FBAR Penalty Case Turn Into Willful FBAR Penalty Case as a Result of FBAR Litigation?

Such a possibility exists, especially in cases where the IRS imposed non-willful penalties without having sufficient information to assess willful penalties. Since the DOJ will try to argue that the cases should be tried de novo, it is possible that new information obtained during the discovery stage of a case may result in sufficient evidence for the DOJ to argue that willful FBAR penalties should be imposed.

Therefore, it is important to bring in an international tax attorney as early as possible into your case to assess the possibility of the DOJ turning a non-willful case into a willful one.

Can the Recent Increase in FBAR Penalties Influence a Taxpayer’s Exposure as a Result of FBAR Litigation?

Recently, the FBAR penalties experienced a significant increase as a result of the Congress-mandated adjustment to inflation. The increase should not affect any penalties assessed prior to November 2, 2015. The FBAR Penalties imposed after that date are likely to be affected by FBAR Litigation, because the DOJ may sue for the adjusted amount of penalties.

What Should I do If the DOJ Files Compliant Against Me in a US District Court?

If you receive a compliant from the DOJ (acting on behalf of the United States of America), you should contact Sherayzen Law Office as soon as possible for professional help. Mr. Sherayzen is an experienced international tax lawyer who can help you determine on how to best deal with the DOJ lawsuit, assess your chances of success and help you with the litigation of the case.

Contact Us Today to Schedule Your Confidential Consultation.