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Why Are FBAR Penalties So High? | International Tax Attorney

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Now that we’ve talked about the Income Reporting Requirements, let’s talk about the Information returns. Again, I’m going to limit myself to the most common Information Returns, simply because otherwise we will be talking about it for quite awhile, longer than the time allotted.

The most dangerous and the most important Information return that exists is FBAR. How many people here have heard of FBAR? (A few raised hands in the audience)

FBAR is the report of Foreign Bank and Financial Accounts. It’s official name is FinCEN Form 114; it used to have a very lovely name, ‘TD F 90-22.1’. The FinCEN Form 114 replaced TD F 90-22.1 about three years ago; but I still remember it and I can say without hesitation, how impressive this form was to me.

Why is it so important? If you look at your handout on the right-hand side, where the listed of penalties are referenced, it becomes very clear why compliance with this form is a Centerpiece of US Tax Compliance; US Tax Enforcement efforts are focused on this form. Very few people know that FBAR is actually not a tax form in of itself and comes form Title 31, Bank Secrecy Act that was passed in 1970.

The Internal Revenue Code, Title 26 partially explains why the penalties are so high with respect to the FBAR. Originally it was not meant to fight Tax Evasion but to fight Money Laundering and Financial Crimes so, the penalties there naturally are associated with Criminal Activities.

What happend after 2001 is that the function of enforcing the FBARs was turned over to the IRS and ever since that time, the FBAR turned into a Tax Enforcement mechanism and a very effective one, due to the penalties associated with it.

International Tax Law Firm

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At this point I will switch over to English (laughter) because any discussion of International Tax Law requires precision, which my French, unfortunately cannot convey at this point.

Before we delve into the subject matter of today’s discussion, I would like to give you some background information so that you have an idea about who I am and what it is I do.

My name is Eugene Sherayzen and I’ve been an International Tax Attorney for about eleven years now; I started practicing Law right after I finished Law School and got my Attorney License in 2005. All these years, I’ve been devoted to building my own Law Firm, Sherayzen Law Office, Ltd. which specializes in International Tax Compliance, in particular Offshore Voluntary Disclosures; this is by far the largest area of my practice in International Tax Law but I also do International Tax Planning and Annual US Tax Compliance.

The nature of my practice is such that I have a very wide-range of Clients, from school teachers, to owners of Multimillion dollar businesses, to families of Chiefs of African tribes, to Foreign Businesses that invest in the United States, to US Businesses who wish to expand overseas etc., etc.

These Clients come from various Countries. I’ve had Clients from every Continent in which there is a permanent human settlement except Greenland (but that is a subject of discussion, of dispute as I understand, no one really knows whether it’s an Island or a Continent as this matter isn’t settled just yet).

I did attempt to count how many Countries I’ve dealt with over these years and I have come up with a number which is over sixty, and this is not counting the Consultations from obscure Countries; of Consultations from ships, sometimes people call me while they’re still at sea.

International Tax Lawyer Minneapolis

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Buona Sera, Seniorie Seniorie!

My name is Eugene Sherayzen and I am an International Tax Attorney. Before we delve into the subject matter of today’s presentation, I would like to give you some background information so that you have an idea of who I am and what it is that I do.

I’ve been an International Tax Attorney for about 11 years; I started practising law right after I graduated from Law school, passed the Bar and got my License all in one year, in 2005. I’ve devoted all these years between 2005 and to the present time to expanding my own Law Firm – Sherayzen Law Office, Ltd., which specializes in International Tax Compliance, in particular Offshore Voluntary Disclosures (this is the core area of my practice), but I also do Annual US Tax Compliance and International Tax Planning.

The nature of my practice is such that I have a very diverse Client base with Clients coming from over 60 Countries from every Continent permanently inhabited by human beings.

The majority of my Clients come from Europe both Western and Eastern, Southeast Asia, Canada and of course the United States. A significant number of my Clients come from Latin America and the Middle East and a small number of Clients come from Australia and some African countries like Nigeria.

There are several unique aspects of my firm that I would like to share with you today. First, we’re the only boutique law firm that offers such a wide range of International Tax Services; only very large Accounting and Law Firms do what I do on a regular basis. Second, we combine the Legal and the Accounting aspects of International Tax Practice in one firm.

This is unique; maybe firms like Ernst & Young do that but what it does is that it allows my firm to handle the entire case from the beginning to the end by itself without the necessity of retaining outside Accountants or Lawyers.

Finally, we are a truly International Law Firm because we offer services in three languages: English, Russian and Spanish… no Italian yet, though in a year or two I hope to add French and then we’ll see about the Italian.

International Tax Lawyers Madison | Importance of Avoiding International Tax Mistakes

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Let’s begin by answering a philosophical question. Why should you care? I mean after all, all of you here are Business Lawyers; So what if you make a Tax Mistake intentionally or unintentionally? After all you’re not Tax Lawyers.

Let me pose that question to you because all of you are here today for a reason; why do you care? Why did you come here? Why do you think it’s important for Business Lawyers to know how to avoid making International Tax Mistakes?

Any takers?

Audience member answer: “To keep our Clients out of jail.”

Okay, Good one!

Any other….?

Second audience member answer: “The Tax Consequences will affect the Bottom Line…. of your Business.”

Third audience member answer: “It will keep us out of jail too. That helps; don’t you think?”

Other comment: “So far, so good.” (Laughter)

Unknown audience member comment: “I think just to do anything confidently, you’ve got to know a lot about everything.”

Perfect; and I think all of you are right! If I were to summarize it, I would say that a Client will not appreciate if a Business Deal that you pulled together, no matter how perfect it is from the Business World Perspective, results in a tremendous increase in the Client’s Tax Liability, exposing the Client to huge IRS Civil Penalties and potentially Criminal Penalties because the Client could end up in jail for International Tax Noncompliance.

From the tax perspective, a badly structured Business Deal will boomerang back to you; first, in the form of losing a Client (because the Client will not stay with you after that), second, you might be facing a Legal Malpractice Lawsuit (which was mentioned here earlier) and the third thing is that potentially, it could be an Ethical Violation because you would be advising in a very Specialized Area in which you have no knowledge or experience. You might be endangering your Attorney License at that point.

Every Business Transaction Has Tax Consequences | International Tax Lawyers Indianapolis

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Now that we have established why we should care about making International Tax Mistakes, let’s discuss the five strategic traps which would expose you as Business Lawyers to making International Tax Mistakes.

I will follow along in this handout that you all have; hopefully everyone has it. Let’s start with the Business Purity Trap. A Business Purity Trap is an assumption that there is a purely Business Transaction that has no connection to Tax Law whatsoever and because there’s no connection to International Tax Law; obviously, there is no need to ask a Tax Advisor about this Transaction.

You cannot imagine how many times I see this. In one area where I see this most often is Business Formation, when Business Lawyers advise their Clients to form Business Entities and structure Business Transactions in a way that would entail information of different Business Entities throughout the world. Obviously, this gets their Clients into trouble because every Business Transaction has Tax Consequences.

Let me repeat that: Every Business Transaction has Tax Consequences.