2015 FBAR (FinCEN Form 114) Due on June 30, 2016

/0 Comments/in , /by

2015 FBAR is one of the most important tax information returns required by the IRS this year. While the 2015 FBAR is not the most complicated form, it is definitely the one that is associated with the most severe penalties.

2015 FBAR History

The FBAR is an abbreviation for the Report of Foreign Bank and Financial Accounts (the “FBAR”). The current official name of the FBAR is FinCEN Form 114 (prior to mandatory e-filing, Form TD F 90-22.1 was the name of the FBAR).

Many of my clients are surprised to learn that FBAR is a tax information return with a long history, dating back to the late 1970s. Its origin lies in the Bank Secrecy Act (31 U.S.C. §5311 et seq.) and it was originally meant to combat money laundering. However, after September 11, 2001, the FBAR enforcement was turned over to the IRS and it became a tax-enforcement tool of heretofore unimaginable power due to its heavy penalties.

Who is Required to File 2015 FBAR

The Department of Treasury (the “Treasury”) requires that an FBAR is filed whenever a US person has a financial interest in or signatory authority over foreign financial accounts and the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. If you had such a situation in 2015, then you must seek an advice from an FBAR lawyer on whether you need to file the 2015 FBAR.

2015 FBAR Deadline

2015 FBAR must be e-filed with the IRS by June 30, 2016; there are no extensions available – the 2015 FBAR must be received by the IRS no later than June 30, 2016. Note: FBAR due date now coincides with due dates for tax returns. 

Consequences of Failure to File Your 2015 FBAR Timely

If your 2015 FBAR is not timely filed, then it will be considered delinquent and might be subject to severe FBAR civil and criminal penalties, depending on your circumstances. It is also important to point out that an incorrect or incomplete 2015 FBAR will also be considered delinquent with the higher possibility of imposition of the FBAR’s draconian penalties.

Multiple Years of FBAR Delinquency

If you did not file the FBARs in the prior years and you were required to do so, this situation is extremely dangerous (especially in our FATCA-dominated world) and may result in imposition of multiple FBAR penalties. This is why you should seek advice of an experienced FBAR lawyer as soon as possible

Contact Sherayzen Law Office for Assistance with Your FBAR Compliance

If you have not filed your FBARs previously and you were required to do so, contact Sherayzen Law Office for help as soon as possible. Our team of experienced tax professionals, headed by attorney Eugene Sherayzen, has helped hundreds of US taxpayers around the world to lower and even eliminate their FBAR penalties. We can help You!

Contact Us NOW to Schedule Your Confidential Consultation

What is a FATCA Letter?

/0 Comments/in , /by

Over eight million U.S. taxpayers are expected to receive FATCA letters from their foreign banks. The first reaction of most taxpayers is to ask: “What is a FATCA letter?” The next question is: “What should I do if I receive(d) a FATCA Letter?” This article intends to answer both questions.

The FATCA Letter

A FATCA Letter is a communication from your foreign bank to you in order to obtain the information that the foreign bank is required to disclose to the IRS under the Foreign Account Tax Compliance Act (FATCA). The basic purpose of a FATCA Letter is to confirm whether you are a U.S. person. Once this information is confirmed, your foreign bank will disclose to the IRS all of the FATCA-required information, including the account numbers and balances of your foreign account.

Your FATCA Letter will usually arrive with the enclosed Forms W-9 and W-8BEN. Form W-9 usually pertains to U.S. citizens, while the Form W-8BEN is usually reserved for nonresident aliens (for U.S. tax purposes).

What Should I Do if I Received a FATCA Letter and I Have Not Reported My Foreign Accounts to the IRS?

Now that you know what a FATCA Letter is, it is important to consider what you should do when you receive one from your foreign bank.

The first thing is to understand what not to do – you should NOT ignore a FATCA Letter. You now know what a FATCA Letter is and you understand that it is used by the bank to comply with FATCA. Hence, if you ignore your FATCA Letter, the bank must do something to explain to the IRS why it could not comply with its reporting obligations. This “something” is likely to get you in trouble, because not only can your bank close your bank account (depending on the FATCA treaty), but your foreign bank will also report you as a “recalcitrant” taxpayer to the IRS together with the account number and the balance. This will likely lead to a later IRS examination which may prevent you from doing any type of a voluntary disclosure and subject you to draconian FBAR penalties.

Rather, with the understanding of the FATCA Letter, your plan of action should be as follows:

1. Understand the deadline by which you should respond to your FATCA letter and see if you have sufficient time to contact an international tax law firm (such as Sherayzen Law Office) prior to the deadline. If you do not have enough time, contact the bank and ask them for more time due to your need to seek legal advice – 30 to 45 days is usually considered reasonable.

However, try to avoid sending any information to the bank if possible without going through step #2 first. I have seen on the internet suggestions from some attorneys to immediately send to the bank Form W-9 before you consult an attorney; usually, such haste is premature and ill-advised. You need to know your legal position first.

2. Schedule a consultation with an international tax law firm immediately after you receive your FATCA Letter – Sherayzen Law Office would naturally be the best choice as the firm that specializes in dealing with FATCA letters.

3. Prepare as many documents and bank records as you can prior to the consultation. Now that you know about the FATCA Letter, you understand that it will involve your entire tax situation. Ask Attorney Eugene Sherayzen for a list of items needed to be supplied prior to the consultation.

4. Go through with the consultation. The consultation is not going to focus just on the FATCA Letter and how it impacts your case; rather, the majority of the consultation will be centered around the discussion of your legal position, your current tax reporting requirements and your voluntary disclosure options.

5. Retain an international tax law firm to do your voluntary disclosure. Again, my suggestion is to retain Sherayzen Law Office, because this is a firm that specializes in the voluntary disclosures and international tax compliance involving FATCA, FBAR, foreign trusts, foreign inheritance, foreign business ownership, and other IRS requirements that may be applicable to you.

Taxation of Liquidating Trusts

/0 Comments/in , /by

Liquidating trusts are common in today’s business environment and it is highly important to understand how they are taxed in the United States. This article is a continuation of a series of articles on the general overview of U.S. taxation of different types of foreign and domestic trusts with the focus on liquidating trusts.

Liquidating Trusts: Definition

Regs. §301.7701-4(d) states that a trust will be considered a liquidating trust “if it is organized for the primary purpose of liquidating and distributing the assets transferred to it, and if its activities are all reasonably necessary to, and consistent with, the accomplishment of that purpose”.

Liquidating Trusts: Tax Treatment

Generally, liquidating trusts are treated as trusts for U.S. tax purposes, but only as long as the trust’s business activities do not become so big as to obscure the trust’s liquidating function. Id. If the latter becomes the case (i.e. the trust’s business activities will obscure its liquidating purpose), then the trust will be treated as a partnership or an association taxable as a corporation.

As Regs. §301.7701-4(d) states, “if the liquidation is unreasonably prolonged or if the liquidation purpose becomes so obscured by business activities that the declared purpose of liquidation can be said to be lost or abandoned, the status of the organization will no longer be that of a liquidating trust.”

Presumptively, Regs. §301.7701-4(d) will treat the following entities as liquidating trusts: bondholders’ protective committees, voting trusts, and other agencies formed to protect the interests of security holders during insolvency, bankruptcy, or corporate reorganization proceedings are analogous to liquidating trusts. However, if they are “subsequently utilized to further the control or profitable operation of a going business on a permanent continuing basis, they will lose their classification as trusts for purposes of the Internal Revenue Code”. Id.

It should be mentioned that, in Rev. Proc. 94-45, the IRS stated that it will treat organizations created under Chapter 11 of the Bankruptcy Code as liquidating trusts as long as all of the IRS extensive requirements are satisfied. Rev. Proc. 94-45 described in detail eleven IRS requirements.

Liquidating Trusts: IRS Review

In general, during the examination of a taxpayer’s classification of the entity as a liquidating trust, the IRS will engage in a two-step analysis. First, it will focus on the trust’s documents, its stated purpose and the powers of the trustees. Second, the IRS will analyze the actual operations of the trust.

The powers of trustees deserve special attention in liquidating trusts. Generally, granting to a trustee incidental business powers to prevent the loss of the value of distributed assets will not turn a liquidating trust into a corporation. However, where trustees are granted extensive powers to conduct business for a relatively large period of time, there is a significant risk that the IRS will re-classify a liquidating trust as a corporation or a partnership.

IRS Letter 3708: IRS Demand to Pay FBAR Penalty

/0 Comments/in , /by

After the IRS imposes an FBAR penalty on the taxpayer, the IRS will send the taxpayer IRS Letter 3708 to demand the payment of the part of the FBAR Penalty that remains unpaid. In this article, I would like to discuss IRS Letter 3708 in more detail, particularly focusing on the various FBAR Penalty Collection options that the letter lists.

First Part of IRS Letter 3708: Explanation of FBAR Penalty Imposed and Balance Unpaid

IRS Letter 3708 begins with the statement that this letter is a demand for the payment of the FBAR (Report of Foreign Bank and Financial Accounts) penalty that was assessed to the taxpayer under relevant IRC sections (such as §5321(a)(5) and §5321(a)(6)). Then, the IRS Letter 3708 mentions that the taxpayer should have previously received IRS Letter 3709 with the explanation of penalty imposed based on the facts of the taxpayer’s case.

Second Part of IRS Letter 3708: Account Summary and Payment Instructions

The next part of IRS Letter 3708 is devoted to the summary of the taxpayer’s account – i.e. the amounts owed per each relevant year. At total amount due is provided at the end.

The letter continues with the explanation of the precise payment instructions, including what information needs to be written on the check (in order for the payment to be applied correctly). Also, an option for an installment agreement is mentioned if the payment in full is not possible. However, even in the case of an installment agreement, the interest of at least 1% will be charged (interest rates may change); additional debt servicing fee of about 18% of the penalty amount may also be charged.

Third Part of IRS Letter 3708: Interest and Penalties

Failure to pay the amount due within 30 days may lead to the imposition of interest and penalties. The interest is imposed under IRC Section 3717(a)-(d); the current rate is 1% per year, but it may be raised in the near future.

The late payment penalty is imposed under IRC Section 3717(e)(2); currently, the rate if 6% per year. This penalty is imposed on portion of the FBAR penalty that remains unpaid 90 days from the date listed on IRS Letter 3708.

IRS Letter 3708 also mentions that both, interest and penalties, may be abated under 31 C.F.R. 5.5(b).

Fourth Part of IRS Letter 3708: Collection Enforcement and Costs

The fourth part of the IRS Letter 3708 is very important, because it is devoted entirely to how the IRS can collect the amount due. The letter lists seven different collection enforcement mechanisms that are available to the IRS if the debt not paid within 30 days:

• Referral to the Department of Justice to initiate litigation against the taxpayer.
• Referral to the Department of the Treasury’s Financial Management Service. (This referral involves an additional debt-servicing fee that is approximately 18% of the balance due.)
• Referral to private collection agencies. (Referral to a private collection agency increases the additional debt-servicing fee from approximately 18% to 28% of the balance due.)
• Offset of federal payments such as income tax refunds and certain benefit payments such as social security.
• Administrative wage garnishment.
• Revocation or suspension of federal licenses, permits or privileges.
• Ineligibility for federal loans, loan insurance or guarantees

These additional costs may be imposed on noncomplying taxpayer based on 31 U.S.C. §3717(e)(1).

Final Part of IRS Letter 3708: Contesting Penalty Assessment

At the end, IRS Letter 3708 advises the taxpayers of two main options for contesting the penalty assessment. First, the taxpayers can file an administrative appeal with the Appeals Office in Detroit. This option is available if an administrative appeal was not requested based on Letter 3709 or if new situations have occurred since the last administrative review. The appeal must be requested in writing within 30 days from the date listed on IRS Letter 3708.

The second option is to file a refund suit in the United States District Court or the United States Court of Federal Claims. IRS Letter 3708 does not state whether such a suit would be subject to the full-payment rule (such as one that applied in income tax matters).

Contact Sherayzen Law Office if Your Received IRS Letter 3708 or IRS Letter 3709

If you received IRS Letter 3708 or IRS Letter 3709, contact Sherayzen Law Office for legal help as soon as possible. We have helped taxpayers around the world to reduce their FBAR penalties and we can help you!

Call Today to Schedule Your Confidential Consultation!

IRS Uses Panama Papers to Identify Noncompliant Taxpayers

/0 Comments/in , /by

In April of 2016, the IRS acknowledged its participation in meetings with Joint International Tax Shelter Information and Collaboration network (“JITSIC”), International Monetary Fund (IMF) and World Bank to take advantage of the data about more than 200,000 offshore companies identified in the Panama Papers. At the same time, the IRS urged noncompliant U.S. taxpayers to come forward before the IRS finds them.

JITSIC and IMF/World Bank Meetings on Panama Papers

The JITSIC meeting regarding Panama Papers brought together senior tax officials from more than forty countries to discuss, per OECD, “opportunities for obtaining data, co-operation and information-sharing in light of the ‘Panama Papers’ revelations”. The IRS officials said they could not discuss who participated and what, specifically, was discussed. But in its statement to NBC News, the IRS described the meeting as “productive and timely” and said “governments around the world are working together cooperatively” to respond to the information released in the Panama Papers, with JITSIC setting itself up as a coordinator.

The following day, the IRS further discussed Panama Papers in gatherings that were part of the annual IMF and World Bank meetings.

After those meetings regarding Panama papers, bankers and finance ministers from the world’s twenty largest economies warned tax havens about their future efforts to punish governments that continue to hide billions of dollars in offshore accounts. The IRS also encouraged any U.S. citizens and companies that may have money in offshore accounts to do a voluntary disclosure with respect to these accounts.

Panama Papers Increase Pressure on IRS to Move Forward Against Cayman Islands, Singapore, Bermuda and Other Tax Shelters

According to media reports, the Panama papers may contain information on potentially thousands of U.S. citizens and firms that have at least an indirect connection to offshore accounts affiliated with Mossack Fonseca. The Panama papers, however, are not likely to contain any spectacular information with respect to U.S. taxpayers because these taxpayers mostly prefer to use Cayman Islands, Singapore and Bermuda.

Nevertheless, while the Panama papers might not be very informative about the U.S. citizens, these documents have increased the political pressure on the IRS to move forward against other tax shelters. Therefore, we should not be surprised if we see new bold IRS initiatives in Cayman Islands, Singapore and Bermuda.

This means that the U.S. taxpayers who have undisclosed foreign assets in Cayman Islands, Singapore and Bermuda should analyze their voluntary disclosure options before it is too late. After the IRS discovery, most (and, perhaps, all) of their voluntary disclosure options will be foreclosed due to IRS examinations.

Contact Sherayzen Law Office for Professional Help With Your Offshore Voluntary Disclosure

If you own, directly or indirectly (through a domestic or foreign corporation, LLC, partnership or trust) undisclosed foreign accounts, you should contact the professional legal team of Sherayzen Law Office as soon as possible. Our highly-experienced legal team is headed by one of the leading experts in U.S. international tax law, attorney Eugene Sherayzen. We will thoroughly review the facts of your case, analyze your current U.S. tax exposure and available voluntary disclosure options, prepare all of the necessary legal documents and tax forms and defend your case against the IRS until its completion. We have helped U.S. taxpayers around the world and we can help You!

Contact Us Today to Schedule Your Confidential Consultation!