Report of Foreign Bank and Financial Accounts FINCEN Form 114

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

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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.

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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

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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

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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), 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.

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

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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-year 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 (now closed).

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

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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.