UK Tax Haven May Be the Result of Brexit | US International Tax Attorney

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In her January 17, 2017 speech, the British Prime Minister Theresa May confirmed that the United Kingdom (“UK”) will leave the European Union (“EU”) and seek a free trade deal with the EU. The Prime Minister also appears to have made the threat of creating a UK Tax Haven if the deal is not struck.

UK Tax Haven: UK is Leaving the EU

Since the ground-breaking referendum vote to leave the EU in June of 2016, many analysts have predicted that the UK will not leave and seek some sort of a partial participation in the EU.

On January 17, 2017, the Prime Minister’s response to these doubters was clear: “No, the United Kingdom is leaving the European Union.” She also stated: “We do not seek to hold on to bits of membership as we leave.”

She also outlined the procedural roadmap to how the UK will leave the EU. In particular, the Prime Minister stated that the government would bring the final withdrawal agreement to the Parliament for a vote before the Agreement comes into force. Furthermore, the UK government will repeal the European Communities Act. Surprisingly, the Prime Minister further said that the existing body of the EU law will be converted into British law.

UK Tax Haven: The Freedom to Set Competitive Tax Rates

The Prime Minister’s speech also contained something of great interest to international tax lawyers. She stated that, once the UK leaves the EU, it will “have the freedom to set the competitive tax rates and embrace the policies that would attract the world’s best companies and biggest investors to Britain.”

Not surprisingly, the reporters, the opposition and some foreign leaders had interpreted this statement as a threat of converting the UK into a major tax haven for the European companies. It appears that the UK government plans to materializes this threat of the UK tax haven only if the UK is excluded from the EU single economic market as a result of a punitive EU action.

This threat of creating a major UK tax haven echos a similar threat made by the Chancellor of the Exchequer Philip Hammond. In his interview with a German newspaper “Welt am Sonntag”, Mr. Hammond stated that, if the UK is excluded from the EU market, the government will try to contain the damage of such a move by switching away from the European model of taxation.

Is the UK Tax Haven Likely to Become a Reality?

So, is the UK Tax Haven a certainty at this point? Probably not. I view this threat more as a negotiation tool rather than the certainty of enacting a certain plan. The UK economy is one of the most important and complex economies in the world; it is very unlikely that the British government will be even able to pursue a course of action of turning the UK into a full tax haven.

On the other hand, it is obvious that the British government will take advantage of the situation and seek to improve the country’s competitiveness through enaction of certain tax strategies. There is a high likelihood that the corporate tax rate may be lowered to a level where it is better than in most other EU countries, but cannot yet be considered as that of a tax haven.

Furthermore, it is possible that the UK tax haven will materialize only with respect to certain classes of taxpayers from certain countries. For example, the United States can be readily considered as a tax shelter for foreign individuals. The UK may be tempted to adopt a similar approach.

Finally, it is important to remember that the UK is already an attractive country from tax perspective. Its corporate rate is not high (it can even be called relatively low), there is no dividend withholding tax, favorable rules for expats, wide treaty network, and so on. Furthermore, the UK did not enact certain beneficial ownership transparency rules that other European countries already have in place.

Most likely, the UK just wishes to keep its options open for now and there is not going to be a UK tax haven in a traditional sense of this word, despite its threats to do so. International tax lawyers, however, should closely follow the UK developments for any tax opportunities that may become available to their clients.

Audit Reconsideration | International Tax Lawyers Minnesota

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Audit Reconsideration is a very important IRS procedure that may provide a taxpayer with a “second chance” to challenge the results of an established IRS determination without going through the expensive process of tax litigation (assuming it is still available as an option). In this article, I will introduce and explore the concept of audit reconsideration for educational purposes.

Audit Reconsideration: General Purposes

Audit Reconsideration is procedure that allows a taxpayer to contest the results of a prior audit where additional tax was assessed and remains unpaid (or where a tax credit was reversed). This procedure is also utilized to challenge a Substitute for Return (SFR) determination.

When Can a Taxpayer Request Audit Reconsideration?

One of the most important reasons why audit reconsideration is considered to be such an important procedural tool is that it can be requested by a taxpayer at any time after an examination assessment is made (as long as the tax remains unpaid). In other words, Audit Reconsideration provides a taxpayer with the flexibility that is unmatched by any other appeal mechanism.

Reasons for Requesting Audit Reconsideration

Audit Reconsideration can be requested for any of the following five reasons:

1. Taxpayer failed to appear for the IRS audit;

2. Taxpayer moved and never received correspondence from the IRS (often, in a situation involving correspondence audits);

3. Taxpayer has additional information that was not presented during the audit;

4. Taxpayer simply disagrees with the final audit assessment (perhaps, because the IRS committed a computational or processing error in assessing the tax);

5. Taxpayer files an original delinquent return after an assessment was made due to a substitute return executed by the IRS.

Procedural Prerequisites for Requesting Audit Reconsideration

There are two important procedural prerequisites for making the request for audit reconsideration: (i) the taxpayer must have filed a tax return; and (ii) the assessment must remain unpaid or the Service must have reversed tax credits that the taxpayer disputes.

Circumstances When the IRS Will Not Consider a Request for Audit Reconsideration

There are certain circumstances when the IRS will not even consider a request for Audit Reconsideration:

(1) The taxpayer has already been granted an audit reconsideration request and did not provide any additional information with the current request that would change the audit results;

(2) The assessment was made as a result of a closing agreement under Code Section 7121 on IRS Form 906 (signed by a taxpayer pursuant to assessment within the IRS Offshore Voluntary Disclosure Program) or Form 866; same applies to assessments made under Form 870-AD;

(3) The assessment was made as a result of a compromise under Code Section 7122 – such agreements are almost always final and conclusive;

(4) The assessment was made as the result of final TEFRA administrative proceedings;

(5) A final decision with respect to the tax liability was made by the US Tax Court, US District Court or the US Court of Federal Claims.

How to Request Audit Reconsideration

There is not any special form that the IRS requires in order to request an audit reconsideration. Instead, any letter composed by the taxpayer or his representative will be deemed sufficient as long as the prerequisites listed above are satisfied and the request includes the following information:

(1) the request must identify which adjustments the taxpayer is disputing – the proposed changes must be made clear to the IRS;

(2) the request must provide additional information that was not considered during the original examination (only copies of the documents should be mailed to the IRS because originals will not be returned);

(3) a copy of the original Form 4549 should be included with the letter; and

(4) a daytime and evening telephone number and the best time for the IRS to reach the taxpayer.

The request letter with supporting documentation should be mailed to the correct address listed in the IRS Publication 3598 or the office that last corresponded with the taxpayer.

Contact Sherayzen Law Office for Professional Help With Your Request for Audit Reconsideration

If you disagree with the results of your personal or business income tax and/or FBAR audit, contact Sherayzen Law Office to explore your appeal options. Preserving and properly using your administrative IRS appeal options is extremely important given the expense involved in a tax court litigation. At Sherayzen Law Office, we have helped numerous clients with their IRS Appeals and Audit Reconsideration Requests and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

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

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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!

Voluntary Compliance with US Tax Laws | International Tax Attorney Austin

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The IRS has repeatedly stated that the US tax system is a voluntary compliance system. Yet, what does “voluntary compliance” mean in this context? Does it mean that US taxpayers only need to comply with US tax laws whenever they wish to do it? Does it mean that any US taxpayer has a right to refuse to comply with US tax laws or file his tax returns whenever he feels like doing it?

A lot of people tried to take this position and failed. The IRS has always won on the issue that US taxpayers have an obligation to comply with US tax laws, whether they want to do it or not.

Then, what is so “voluntary” about our tax system? Let’s explore this question in more detail.

Voluntary Compliance with US Tax Laws is Obligatory

Let us start with the affirmative statement that the word “voluntary” does not refer to the actual obligation of US taxpayers to comply with US tax laws. In other words, the compliance with US tax laws is compulsory and any noncompliance with US tax laws is punishable to the extent permitted by the law. Intentional noncompliance may even result in incarceration of a noncompliant taxpayer.

The IRS Inability to Engage in Full Enforced Tax Compliance

Since the word “voluntary” does not apply to the actual obligation to comply with US tax laws, we must look at the assessment of US tax liability to understand what voluntary compliance means. In particular, our focus should be on what is known as “enforced tax compliance” – i.e. direct assessment of tax liability and the audit of tax returns.

Here, we encounter an obvious yet interesting fact: the IRS does not have the resources to audit every one of the hundreds of millions of US taxpayers (resident and non-resident, individual and business), especially on an annual basis. Similarly, the IRS also lacks the ability to audit every single tax return every year; in fact, it only audits about 3% of all tax returns per year.

This means that the IRS does not have the capacity to sustain a system of enforced tax compliance and the vast majority of US taxpayers operate outside of this system.

The Definition of Voluntary Compliance

This lack of the IRS ability to engage in 100% enforced tax compliance leads to the inevitable conclusion that it has to rely on US taxpayers to timely file their own tax returns, assess their own tax liability and pay this tax liability to the IRS. It is precisely in this sense that US tax compliance system is “voluntary”.

In other words, voluntary compliance means that US taxpayers do their own self-assessment of their US tax liability (hopefully, in accordance with the IRS guidance) instead of the IRS doing it for each of them. Underlying this voluntary compliance, however, is the threat that the IRS can audit the tax returns and impose noncompliance penalties.

Contact Sherayzen Law Office for Professional Help with Your Voluntary Compliance Concerning US International Tax Laws

The IRS focus on the enforced tax compliance regarding the US international tax obligations of US taxpayers has caused an unprecedented rise in the voluntary compliance in this area of law. Noncompliant US taxpayers are at a historically-high risk of detection by the IRS and may face draconian IRS penalties, including jail time.

This means that, if you have foreign assets and foreign income, you need the professional help of Sherayzen Law Office to bring your tax affairs into full compliance with US tax laws. Our firm is highly experienced in the area of US international tax compliance with hundreds of successful cases closed and millions of dollars saved in US taxes and potential penalties! We can help you!

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Why the IRS Loves FBAR | International Tax Attorney Houston

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The IRS loves FBAR. Undoubtedly, FATCA Form 8938 is a very serious rival, but even this form cannot match the FBAR’s popularity among the IRS agents with respect to foreign accounts. What is behind this popularity? Or, stated in another way, why does the IRS love FBAR and prefers them to any other international tax enforcement mechanism for undisclosed foreign accounts?

First Reason Why the IRS Loves FBAR

The first reason why the IRS loves FBAR is because FBAR used to be the main and almost only form that dealt directly with foreign accounts. Until 2011, when Form 8938 appeared for the first time, there was simply no form created pursuant to the Internal Revenue Code that would match the FBAR’s reach with respect to foreign bank and financial accounts.

Second Reason Why the IRS Loves FBAR

The second reason why the IRS loves FBAR is the ease with which a taxpayer can commit an FBAR violation. First, since FBAR comes from Title 31 and it is not part of the Internal Revenue Code, it is a fairly obscure requirement. Obviously, it is much better known now after the IRS voluntary disclosure programs. Still, there are many taxpayers and even accountants who simply do not know of FBAR’s existence.

Second, FBAR has a very low reporting threshold. As long as the highest aggregate balance on the foreign accounts was $10,000 or more at any point during a year, all of the accounts must be reported on FBAR. In essence, any more or less active use of an account is likely to trigger the FBAR requirement.

Third Reason Why the IRS Loves FBAR

The third reason why the IRS loves FBAR is the wide net that the FBAR casts over taxpayers. Not only does the FBAR define the term “account” in a very broad manner (including in this term such odd “accounts” as life insurance policies, bullion gold investments and so on), but its penalty structure forces compliance among all levels of taxpayers irrespective of their earnings or their willfulness (or lack thereof) with respect to FBAR violations.

Fourth Reason Why the IRS Loves FBAR

Finally, the fourth reason why the IRS loves FBAR is its draconian penalty structure that may result in the imposition of penalties that far exceed the balance (to emphasize: not the earnings, but the balance) of the unreported accounts. FBAR imposes high penalties of up to $10,000 even with respect to non-willful violations. Criminal penalties, including jail time, may be possible for willful violations.

In other words, FBAR is the ultimate punishment that the IRS can hammer out on noncompliant US taxpayers. This is probably the most important reason for the popularity of FBAR among IRS agents and even US Department of Justice prosecutors.

Contact Sherayzen Law Office for Professional Help with Undisclosed Foreign Accounts and Foreign Assets

If you have not disclosed your foreign accounts on FBARs or you have other unreported foreign assets, contact Sherayzen Law Office for professional help as soon as possible. Our legal and accounting team is led by one of the best international tax lawyers in the country, Mr. Eugene Sherayzen. We have helped hundreds of US taxpayers around the world with their FBAR compliance and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!