2018 FBAR Civil Penalties | FBAR Tax Lawyer & Attorney

Following the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, the FBAR civil penalties are adjusted every year by the IRS for inflation. In this brief article, I would like to describe the new 2018 FBAR Civil Penalties that may be assessed by the IRS with respect to FBAR noncompliance.

2018 FBAR Civil Penalties: Pre-2016 FBAR Penalty System

The FBAR penalty system was already complex prior to the FBAR penalty inflation adjustment. It consisted of three different levels of penalties with various levels of mitigation. The highest level of penalties consisted of criminal penalties. The most dreadful penalty was imposed for the willful failure to file FBAR or retain records of a foreign account while also violating certain other laws – up to $500,000 or 10 years in prison or both.

The next level consisted of civil penalties imposed for a willful failure to file an FBAR – up to $100,000 or 50% of the highest balance of an account, whichever is greater, per violation per year.

The third level of penalties were imposed for the non-willful failure to file an FBAR. The penalties were up to $10,000 per violation per year. It is also important to point out that the subsequent laws and IRS guidance imposed certain limitations on the application of the non-willful FBAR penalties.

Finally, there were also penalties imposed solely on businesses for negligent failure to file an FBAR. These penalties were up to $500 per violation; if, however, there was a pattern of negligence, the negligence penalties could increase ten times up to $50,000 per violation.

2018 FBAR Civil Penalties: Penalty Adjustment System

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 further complicated the already complex FBAR penalty system, including for 2018 FBAR civil penalties.

As a result of the Act, with respect to post-November 2, 2015 violations, the exact amount of penalties will depend on the timing of the IRS penalty assessment, not when the FBAR violation actually occurred.

For example, in 2017, the IRS announced that if the IRS penalty assessment was made after August 1, 2016 but prior to January 16, 2017, then the maximum non-willful FBAR penalty per violation would be $12,459 and the maximum willful FBAR penalty per violation would be the greater of $124,588 or 50% of the highest balance of the account.

Similarly, if the penalty was assessed after January 15, 2017, the maximum non-willful FBAR penalty would increase to $12,663 per violation and the maximum civil willful FBAR penalty would be the greater of $126,626 or 50% of the highest balance of the account.

Now, in 2018, post-January 15, 2017 FBAR penalties are adjusted higher.

2018 FBAR Civil Penalties: 2018 Inflation Adjustment

The new 2018 FBAR civil penalties for FBAR violations have increased as a result of inflation. If a penalty was assessed after January 15, 2017, the maximum 2018 FBAR civil penalties for a non-willful violation increased from $12,663 to $12,921. Similarly, the maximum 2018 FBAR civil penalties for a willful violation assessed after January 15, 2017 increased from $126,626 to $129,210.

It should be emphasized that the IRS currently interprets the term “violation” as a failure to report an account on an FBAR. In other words, these higher 2018 FBAR civil penalties can be assessed on a per-account basis.

Contact Sherayzen Law Office for Professional Help with 2018 FBAR Civil Penalties

If you have not filed your FBAR and you want to do a voluntary disclosure; if you are being audited by the IRS with the possibility of the imposition of FBAR penalties; or FBAR penalties have already been assessed and you believe that they are too high, you should contact Sherayzen Law Office for professional help.

Sherayzen Law Office has helped hundreds of US taxpayers to deal with their FBAR penalties on all levels: offshore voluntary disclosure, FBAR Audit pre-assessment, post-audit FBAR penalty assessment and FBAR litigation in a federal court. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Passport Revocation and Denial for Tax Debt | IRS Tax Lawyer & Attorney

Starting January 1, 2018, the State Department commenced to deny the requests for US passport issuance and renewal made by individuals with “seriously delinquent tax debt”. Moreover, the State Department has been granted the authority for US passport revocation with respect to these individuals. Let’s explore this new law on passport revocation and denial for tax debt.

Passport Revocation and Denial: IRC Section 7345

Section 32101 of the 2015 Fixing America’s Surface Transportation Act (“FAST Act”) added IRC Section 7345, which requires the IRS to notify the State Department of taxpayers that the IRS has certified individuals as having “seriously delinquent tax debt.” This is called “Section 7345 Certification.” Once the State Department receives such a Certification, it is generally required to deny a passport application for the certified individuals and may even revoke or limit passports that were previously issued to these individuals.

Passport Revocation and Denial: Who Can Make Section 7345 Certifications

Only designated IRS officials may certify an individual or reverse Certification. IRC Section 7345(g) specifically reserves this right to the Commissioner of Internal Revenue, the Deputy Commissioner for Services and Enforcement of the Internal Revenue Service (IRS), or the Commissioner of an operating division of the IRS (collectively, “Commissioner or specified delegate”).

Passport Revocation and Denial: Seriously Delinquent Tax Debt

The term “seriously delinquent tax debt” is defined in IRC Section 7345(b)(1), which sets up four requirements. First, the debt must be “unpaid, legally enforceable Federal tax liability of an individual.” Id. Note that the seriously delinquent tax debt is limited to liabilities incurred under Title 26 of the United States Code (i.e. the Internal Revenue Code). The term does not include items such as FBAR penalties and child support.

Second, this federal tax liability must have been “assessed.” IRC Section 7345(b)(1)(A).

Third, the assessed liability must be greater than $50,000. IRC Section 7345(b)(1)(B). Pursuant to the IRC Section 7345(f), the $50,000 amount is adjusted for inflation each calendar year beginning after 2016. In fact, for 2018, the threshold amount is $51,000.

Finally, either a levy pursuant to IRC Section 6331 or a lien pursuant to the IRC Section 6323 has been issued with respect to the assessed tax liability. IRC Section 7345(b)(1)(C). Moreover, the administrative appeal rights under IRC Section 6320 with respect to the lien must have been either exhausted or lapsed. Id.

Passport Revocation and Denial: More Than $50,000 Threshold

In calculating whether the $50,000 federal tax liability threshold is met, the IRS will aggregate all of the current tax liabilities for all taxable years and periods assessed against an individual. It will also include penalties and interest.

Passport Revocation and Denial: Exclusions

Under the newly-issued IRS guidance, the term “seriously delinquent tax debt” for the purposes of passport revocation and denial does not include the following:

1. A debt that is being timely paid under an IRS-approved installment agreement under section 6159.

2. A debt that is being timely paid under an offer in compromise accepted by the IRS under section 7122.

3. A debt that is being timely paid under the terms of a settlement agreement with the Department of Justice under section 7122.

4. A debt in connection with a levy for which collection is suspended because of a request for a due process hearing (or because such a request is pending) under section 6330.

5. A debt for which collection is suspended because the individual made an innocent spouse election (section 6015(b) or (c)) or the individual requested innocent spouse relief (section 6015(f)).

Passport Revocation and Denial: Exceptions

Additionally, the State Department will not revoke or deny the US passport of a taxpayer if one of the following exceptions apply:

1. The taxpayer is in bankruptcy;

2. The IRS identified the taxpayer as a victim of tax-related identity theft;

3. The IRS determined that the taxpayer’s account is currently uncollectible due to hardship;

4. The taxpayer is located within a federally declared disaster area;

5. The taxpayer has a request pending with the IRS for an installment agreement;

6. The taxpayer has a pending offer in compromise with the IRS;

7. The taxpayer has an IRS-accepted adjustment that will satisfy the debt in full; or

8. If the taxpayer is serving in a designated combat zone or participating in a contingency operation, the IRS will postpone the Certification.

Passport Revocation and Denial: 90-Day Delay

Before denying a passport, the State Department will grant a taxpayer 90 days to allow him to either resolve any erroneous certification issues, make a full payment of the tax debt or enter into a payment arrangement with the IRS.

Passport Revocation and Denial: Main Remedy in Case of Erroneous Certification

In cases where the IRS makes an erroneous Certification or fails to revers a certification, a taxpayer does not have many choices. It appears that the taxpayer will not be able to appeal to the IRS Office of Appeals. The main course of action in these situations appears to be a civil action in court under IRC Section 7345(e).

Contact Sherayzen Law Office for Professional Help with US Tax Issues

Sherayzen Law Office is a highly experienced tax law firm based in Minneapolis. We have helped hundreds of US taxpayers to resolve their tax issues, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

2018 FSI Ranks United States as Second Largest Secrecy Haven | FATCA

Paradoxically, while demanding that other countries comply with FATCA, the United States itself has become the second largest secrecy haven in the world according to the Financial Secrecy Index (“FSI”) released by the Tax Justice Network (“TJN”) at the end of January of 2018. Let’s explore why the 2018 FSI considers the United States a Tax Haven.

What is 2018 FSI?

The TJN’s FSI is considered to be one of the most comprehensive assessments of secrecy of financial centers. It is published every two years using independently verifiable data. Its methodology is based on the European Commission’s Joint Research Center. The 2018 FSI, however, is not considered to be influenced by any political considerations.

The FSI is based on various criteria which is updated with each publication. The assessment of a country’s financial secrecy includes such consideration as: requirement to identify beneficial owners of companies, trusts and foundations; whether annual registries are made available to the public in an online format; the extent to which the countries’ financial secrecy rules are forced to comply with the anti-money laundering standards, and so on.

In order to create the index, a secrecy score is combined with a figure representing the size of the offshore financial services industry in each country. This is expressed as a percentage of global exports of financial services. The responsibility for bigger transparency increases with the size of the financial services industry of a country.

In 2018, new indicators where added to what are now considered 20 Key Financial Secrecy Indicators “KFSI”. The 2018 FSI new factors ask whether a jurisdiction in question provides for public register of ownership and annual accounts of limited partnerships; public register of ownership of real estate; public register of users of freeports for the storage of high value assets; protection against prison for banking whistleblowers; harmful tax residency and citizenship rules; and other factors.

2018 FSI Placed United States as Second Largest Secrecy Haven Among the Top 10 Countries

Based on the consideration of all of these factors, including KFSI, the 2018 FSI placed United States as the second largest secrecy haven among the top ten countries. Here is the full list of top ten countries:

1. Switzerland
2. United States
3. Cayman
4. Hong Kong
5. Singapore
6. Luxembourg
7. Germany
8. Taiwan
9. UAE
10. Guernsey

What this means is that the United States is now the country that, with the exception of Switzerland, most contributes to financial secrecy in the world.

Reasons Behind the US Rise in the 2018 FSI Ranking

The second rank of the United States was assigned due to its growing share of the offshore financial services industry. According to 2018 FSI, the US market share of the offshore financial services industry is 22.3%. It was 19.6% in 2015. In fact, in order to occupy the second place in the 2018 FSI, the United States displaced such a notorious offshore haven as the Cayman Islands.

There are other objective reasons and comparative reasons for the US rise to the second place of the 2018 FSI. The main comparative reason is the European Union’s lead in the transparency initiatives. The EU is now the definite leader in combating financial secrecy.

The objective reasons are various. The United States does not have any beneficial ownership registries. It also lacks the country-by-country reporting of corporate profits (although, this may change). Finally, the United States continues to refuse to join the OECD’s Common Reporting Standard (“CRS”).

The Second Place in the 2018 FSI Points to Dubious Cost-Benefit Analysis

The second place in the 2018 FSI is not accidental. Rather, there is a cold, though morally dubious, cost-benefit calculation behind it. On the one hand, the United States was the country that really propelled the global fight against bank secrecy in the years 2008-2014. It trampled all over the vaulted Swiss Bank Secrecy laws when it came to its pursuit of US tax evaders, enacted the revolutionary FATCA legislation, forced the vast majority of foreign financial institutions to share information (including beneficial ownership information) with the IRS concerning US owners of foreign accounts, and engaged in a number of other activities to increase the worldwide financial transparency with respect to US taxpayers.

On the other hand, all of the US efforts to combat bank secrecy were not a fight for transparency ipso facto. Rather, the US government was only interested in fighting bank secrecy in so far as it concerned US taxpayers. With respect to its own bank secrecy laws concerning foreigners who wish to invest in the United States, the US government is on par and even exceeds some of the most secretive tax havens.

In other words, when it comes to fighting US tax evasion, the US government is an innovative champion. With respect to attracting investment in the United States, the same US government seems to do everything possible to turn the United States into a tax haven. This is precisely why it never joined the CRS.

While the US government seems to be acting in the name of the national self-interest, there is one huge problem that this policy creates. Currently, the elites of the most corrupt regimes, mafias and cartels of all stripes, narcotics dealers and other criminals can see the advantage of using the United States as a haven for illicit financial flows, including money laundering and funding of terrorism. There is also an increased danger that the corruption created by one part of the US financial policy may spread to other aspects of our society.

In other words, the current US bank secrecy policy seems to be in contradiction with other stated policies which attempt to specifically target the aforementioned criminal activities. This contradiction is an easy target for critics of the US financial policy and may contribute in the future to potential reversals of the current gains in international financial transparency.

Sherayzen Law Office will continue the monitor the developments in the US bank secrecy laws.

IRS Prioritizes Combating Offshore Tax Cheating | Offshore Tax Lawyer

On March 20, 2018, the IRS announced that offshore tax cheating – i.e. hiding money and other assets in unreported foreign accounts – remains on the IRS “Dirty Dozen” tax scams for the year 2018.

Offshore Tax Cheating: What is the “Dirty Dozen” List?

The IRS uses the “Dirty Dozen” list to describe various scams that a taxpayer may encounter and which form the focus of the IRS enforcement efforts. Some of these schemes peak during the tax filing season.

Illegal scams can lead to significant penalties and even possible criminal prosecution. The IRS Criminal Investigation Division works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

What is Offshore Tax Cheating?

In its most basic form, offshore tax cheating is a long-running scheme that uses foreign accounts to hide money in order to avoid paying US taxes. The taxpayers then use debit cards, credit cards or wire transfers to access the hidden accounts. More complex schemes include the usage of foreign corporations, foreign trusts, employee-leasing schemes, private annuities, insurance plans and other third-parties to conceal the real US owner of foreign accounts.

The most modern offshore tax cheating scheme has involved cryptocurrencies traded overseas and exchanged into a foreign currency by using an offshore account. The IRS has already begun addressing tax evasion based on virtual currencies, but we have not yet seen a fully-developed IRS enforcement in this area.

Offshore Tax Cheating is the Long-Standing Focus of the IRS

The IRS warns that taxpayers should be wary of these schemes, especially given the continuing focus on this issue by the IRS and the Justice Department.

In fact, since mid-2000s, offshore tax cheating has been one of the primary targets of the IRS. The IRS already conducted thousands of offshore-related civil audits that resulted in the payment of tens of millions of dollars in unpaid taxes. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

Every investigation yields important information that is used to learn about noncompliance patterns and commence other investigations. Some of these investigations may focus on bankers and financial advisors who helped set up a scheme that led to offshore tax cheating.

Offshore Voluntary Disclosure as a Way to Settle Prior Tax Noncompliance

If a taxpayer participated in scheme that the IRS may characterize as offshore tax cheating, he should consider doing a voluntary disclosure as soon as possible. It is very likely that the IRS will consider tax noncompliance associated with such a scheme as willful. Hence, the Offshore Voluntary Disclosure Program (“OVDP”) may be the primary choice for such taxpayers.

In fact, according to the IRS, more than 56,400 disclosures were made through various versions of OVDP since 2009. The IRS collected more than $11.1 billion from the OVDP during that time period.

Additionally, more than 65,000 taxpayers who claimed that they were non-willful in their prior tax noncompliance participated in the Streamlined Compliance Procedures. As I stated above, however, a taxpayer should be very careful about participating in the Streamlined Compliance Procedures if he participated in a scheme that the IRS may classify as offshore tax cheating.

OVDP Will Close on September 28, 2018

Taxpayers who wish to participate in the OVDP should consult Sherayzen Law Office as soon possible. The IRS recently announced that the OVDP will close on September 28, 2018.

Contact Sherayzen Law Office if You Wish to do an Offshore Voluntary Disclosure That Involves a Scheme Classified as Offshore Tax Cheating

If you participated in a scheme that the IRS may classify as offshore tax cheating, you should contact Sherayzen Law Office to explore your voluntary disclosure options as soon as possible.

Sherayzen Law Office is a leading international tax law firm that specializes in offshore voluntary disclosures, including OVDP and Streamlined Compliance Procedures. We have helped hundreds of US taxpayers around the world to bring their US tax affairs into full compliance with US tax laws, and We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

Uruguay-US Social Security Agreement Sent to Congress | Tax Lawyer

On March 19, 2018, President Trump sent the Uruguay-US Social Security Agreement to the US Senate. This is an important step toward the final ratification of the treaty that promises to benefit the citizens of both countries.

Uruguay-US Social Security Agreement: What is a Social Security Agreement?

A Social Security Agreement (also called a Totalization Agreement) is essentially a treaty between two countries that eliminates the burden of dual social security taxation for individuals and businesses who operate in both countries.

Typically, the potential for this type of double-taxation arises when a worker from country A works in Country B, but he is covered under the social security systems in both countries. In such situations, without a Social Security Agreement, the worker will have to pay social security taxes to both countries on the same earnings. A Social Security Agreement, on the other hand, allows the worker (and employers) to pay social security taxes only in one country identified in the treaty.

Social Security Agreements are authorized by Section 233 of the Social Security Act. Right now, only 26 Totalization Agreements are in force between the United States and another country: Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, South Korea, Spain, Sweden, Switzerland and the United Kingdom. Uruguay may become the 27th country to have a Social Security Agreement with the United States.

Uruguay-US Social Security Agreement: Recent History

The Uruguay-US Social Security Agreement has had a very favorable history so far. In fact, it may set the record for the fastest treaty ever negotiated by Uruguay. The countries first agreed to pursue a Social Security Agreement between them in May 2014, when the then Uruguayan president Jose Mujica was in Washington.

Amazingly, already in May of 2015, after just two rounds of talks held over a six-month period, the countries finished the negotiations of the Uruguay-US Social Security Agreement. Typically, it takes anywhere between two to three years to negotiate a Totalization Agreement.

On January 10, 2017, the Uruguay-US Social Security Agreement was signed in Montevideo. The United States was represented by its ambassador Mr. Kelly Kinderling. Uruguay was represented by its Foreign Minister Jose Luis Cancela and Labor and its Social Security Minister Ernesto Murro.

On October 3, 2017, the Uruguayan Senate approved the pending Uruguay-US Social Security Agreement, thereby completing the first part of the necessary ratification process. By sending the treaty to Congress for the required 60-day review period, President Trump started the US ratification process.

Uruguay-US Social Security Agreement: Benefits

According to Uruguay, the Uruguay-US Social Security Agreement will benefit some 60,000 Uruguayans working in the United States and up to 6,000 Americans living in Uruguay. The primary benefit is that the workers of both countries will be able to count the working years spent in both countries to be obtain eligibility for their home-country retirement, disability and survivor benefits.

Additionally, the Agreement will exempt US citizens sent by US-owned companies to work in Uruguay for five years or less from paying the Uruguayan social security taxes. Similarly, Uruguayan citizens sent to work temporarily in the United States by Uruguayan-owned companies will not need to pay social security taxes to the US government. Thus, employers in both countries will pay social security taxes only to their employees’ home countries.

Additionally, both countries hope that the Uruguay-US Social Security Agreement will boost trade between the countries. Currently, more than 200 American firms operate in Uruguay (mostly in the service sector).

Sherayzen Law Office will continue to monitor future developments with respect to this highly-beneficial treaty.