Streamlined Foreign Offshore Procedure

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One of the most dramatic changes to the voluntary disclosure process made by the IRS on June 18, 2014, was the complete revamping of the Streamlined Foreign Offshore Procedure. As long as the taxpayer can honestly certify that his prior violations of U.S. tax laws were non-willful, the Streamlined Foreign Offshore Procedure offers a unique opportunity for such a taxpayer to bring his tax affairs with respect to foreign accounts and other offshore assets into complete compliance with the U.S. tax rules with potentially no penalties. In this article, I am going to outline the Streamlined Foreign Offshore Procedure and discuss why it is important to take advantage of it as soon as possible.

Old Streamlined Foreign Offshore Procedure

The Streamlined Foreign Offshore Procedure already existed prior to June 18 changes. However, while it offered a no penalty solution to U.S. taxpayers residing overseas, it also imposed severe limitations preventing the great majority of these taxpayers from qualifying to participate in the Streamlined Foreign Offshore Procedure.

The most difficult conditions were the $1,500 additional tax liability threshold and the risk assessment process (to comply with the “simple return” rule). Further complications would arise from the failure to timely file original tax returns.

2014 Changes to Streamlined Foreign Offshore Procedure

It is precisely these difficult requirements that were removed by the IRS in June of 2014, thereby opening up a tremendous opportunity to U.S. taxpayers residing overseas: the $1,500 tax limit was gone, the risk assessment process was gone, and the importance of timely filed U.S. tax returns was also downgraded. Instead, the IRS created a new advantageous (to U.S. taxpayers) Streamlined Foreign Offshore Procedure with simplified eligibility requirements.

If these requirements are met, a U.S. taxpayer residing overseas can now avoid the imposition of all FBAR penalties if he follows the Streamlined Foreign Offshore Procedure for filing amended tax returns and delinquent FBARs.  Moreover, as an additional bonus, the IRS is stating that it will waive all failure-to-file and failure-to-pay penalties, accuracy-related penalties, and information return penalties.

There are some limitations on this generous gift. Any previously assessed penalties with respect to those years, however, will not be abated. Furthermore, as with any U.S. tax return filed in the normal course, if the IRS determines an additional tax deficiency for a return submitted under these procedures, the IRS may assert applicable additions to tax and penalties relating to that additional deficiency.

Since Streamlined Foreign Offshore Procedure offers such tremendous benefits to U.S. taxpayers who reside outside of the United States, it is important to make sure that all of the eligibility and filing requirements are met.

Streamlined Foreign Offshore Procedure: Eligibility requirements

There are three main eligibility requirements for participation in the Streamlined Foreign Offshore Procedure. First, the taxpayer must meet the applicable non-residency requirement. Here is the first caveat, for joint return filers, both spouses must meet the applicable non-residency requirement. Different rules apply to taxpayers who are U.S. citizens and U.S. permanent residents than to those taxpayers who do not fall into these categories.

The second requirement of the Streamlined Foreign Offshore Procedure is that the taxpayer violated the applicable U.S. tax requirements non-willfully – i.e. the taxpayer failed to report the income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, and such failures resulted from non-willful conduct.

The third requirement of the Streamlined Foreign Offshore Procedure is that the participating taxpayer is not subject to an IRS civil examination or an IRS criminal investigation.  Two important points here – it does not matter whether the examination relates to undisclosed foreign financial assets and it does not matter whether the examination involves any of the years subject to the voluntary disclosure.  In either case,  the taxpayer will not be eligible to use the Streamlined Foreign Offshore Procedure.

In reality, there is a more obscure fourth requirement that there is a valid Taxpayer Identification Number (TIN), but this issue can be solved by enclosing a completed ITIN application with the disclosure package under the Streamlined Foreign Offshore Procedure.

Filing Requirements Under the Streamlined Foreign Offshore Procedure

There are five main filing requirements that must be met in order to comply with the Streamlined Foreign Offshore Procedure.

The first filing requirement under the Streamlined Foreign Offshore Procedure is that, for each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the taxpayer must file delinquent or amended tax returns, together with all required information returns (e.g., Forms 3520, 5471, and 8938). Specific procedures must be followed in the preparation of these returns.

The second filing requirement under the Streamlined Foreign Offshore Procedure is that, for each of the most recent 6 years for which the FBAR due date has passed, the taxpayer must file delinquent FBARs according to the FBAR instructions and include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures. The taxpayer is required to file these delinquent FBARs electronically at FinCEN. Detailed instructions must be followed to file these FBARs properly.

The third filing requirement under the Streamlined Foreign Offshore Procedure is the submission of the payment of all tax due as reflected on the tax returns and all applicable statutory interest with respect to each of the late payment amounts. The taxpayer’s TIN must be included on the check.

The fourth filing requirement under the Streamlined Foreign Offshore Procedure is the submission of any requests for relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by an applicable treaty.  Specific additional requirements apply to this request (especially, in the Canadian RRSP context).

Finally, the fifth filing requirement under the Streamlined Foreign Offshore Procedure is the most important part of this application – completed and signed “Certification by U.S. Person Residing Outside of the U.S.” (as of July 4, 2014, this is still in draft format but the final version should appear soon).

This is the most important legal document in the Streamlined Foreign Offshore Procedure. This is the statement that certifies that the taxpayer: (1) is eligible for the Streamlined Foreign Offshore Procedures; (2) that all required FBARs have now been properly filed; and (3) that the failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct. I cannot emphasize enough the importance of contacting your international tax attorney prior to submitting this document to the IRS.

The taxpayer must submit the original signed statement as well as attach copies of the statement to each tax return and information return being submitted through these procedures.

Streamlined Foreign Offshore Procedure: Some Considerations

While participation in the Streamlined Foreign Offshore Procedure may offer tremendous benefits to U.S. taxpayers who reside outside of the United States, it is important to understand that this may not be a simple process and all considerations should be taken into account. From the legal determination of whether the residency requirements are met to the very complicated legal decision on whether the “non-willful” determination applies, Streamlined Foreign Offshore Procedure involves significant legal analysis.

Based on my extensive experience, I believe that the great majority of the U.S. taxpayers who are currently not in compliance with the FBAR requirements are non-willful at heart. However, it is important to make sure that the legal case supports this finding – i.e. the facts of the case should support the determination of legal non-willfulness.

I strongly advise against making such determination without the help of an international tax lawyer. You need an attorney who can look at your case objectively and with a “cool head”, and make such determination based on his experience and knowledge of law.

Finally, it is essential to understand that there is no guarantee that Streamlined Foreign Offshore Procedure will be available even in half a year in the same format.  The IRS reserved the power to change the rules regarding  Streamlined Foreign Offshore Procedure at any point.  This is why it is so important to act fast to make sure that you are able to take advantage of this unique opportunity.

Contact Sherayzen Law Office for Professional Help with Your Participation in the Streamlined Foreign Offshore Procedure

If you have undisclosed foreign accounts, contact Sherayzen Law Office for a professional analysis of your voluntary disclosure options. Our international tax law firm has helped hundreds of U.S. taxpayers worldwide and we can help you.

Contact Us to Schedule Your Confidential Consultation!

Offshore Accounts Tax Lawyer: Delinquent FBAR Submission

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If there is anything familiar left of the old offshore voluntary disclosure landscape for an Offshore Accounts Tax Lawyer after the 2014 update to the IRS Offshore Voluntary Disclosure Program (“OVDP”),  it will be the submission of delinquent FBARs under the old FAQ 17. Of course, under the new 2014 OVDP, there is no FAQ 17.

However, an Offshore Accounts Tax Lawyer will find a very similar language under the new “Delinquent FBAR Submission Procedures”.

Offshore Accounts Tax Lawyer: Old 2012 OVDP FAQ 17

Under the old 2012 OVDP FAQ 17, an Offshore Accounts Tax Lawyer would advise his U.S. clients who reported and paid tax on all their taxable income for prior years but did not file FBARs that there would be no penalties for the failure to file the delinquent FBARs. The key to the application of Q&A 17 is that there should be no underreported tax liabilities (actually, no underreported income at all) by the taxpayer and the taxpayer was not previously contacted regarding an income tax examination or a request for delinquent returns.

Offshore Accounts Tax Lawyer: New 2014 OVDP Delinquent FBAR Submission Procedure

The 2014 OVDP rules offer to an Offshore Accounts Tax Lawyer fairly similar language. They state that, where neither Streamlined Filing Compliance Procedures nor the OVDP rules are applicable because the taxpayer does not need to file delinquent or amended tax returns to report and pay additional tax, the IRS is not likely to impose penalties as long as three conditions are met:

1. The taxpayer has not filed a required Report of Foreign Bank and Financial Accounts (FBAR) (FinCEN Form 114, previously Form TD F 90-22.1);

2. The taxpayer is not under a civil examination or a criminal investigation by the IRS; and

3. The taxpayer has not already been contacted by the IRS about the delinquent FBARs.

In such case, an Offshore Accounts Tax Lawyer should advise his clients to file the delinquent FBARs according to the FBAR instructions and include a statement explaining why the FBARs are filed late. All FBARs are required to be filed electronically at FinCen (contact an Offshore Accounts Tax Lawyer for more details).

If all of these conditions are met and the taxpayer voluntary files the FBARs with an explanatory statement, the IRS promises not to impose FBAR penalties. However, an Offshore Accounts Tax Lawyer should point out to his clients that, while the FBARs will not be automatically subject to audit, there is always a possibility that these FBARs may be selected for audit through the existing audit selection processes that are in place for any tax or information return.

Offshore Accounts Tax Lawyer: Issue of Streamlined vs. Delinquent FBAR Procedure

An interesting issue arises for an Offshore Accounts Tax Lawyer where the client closed his accounts four years ago (for example, in 2010) but still would have additional tax liability for the two years prior to that for year period (in this example, 2008 and 2009). Should an Offshore Accounts Tax Lawyer advise his client to enter the Streamlined Option at this point even though the amended tax returns would show no additional tax liability for the past three years?

In reality, situations are rarely as clear cut as this example and the legal determinations with respect to the path of your voluntary disclosure must be discussed with an experienced Offshore Account Tax Lawyer, at the international tax law firm of Sherayzen Law Office.

Contact Sherayzen Law Office for Help With Your Delinquent FBARs

If you have undisclosed foreign accounts, contact Sherayzen Law Office for professional legal help. Our experienced international tax law firm specializes in Offshore Voluntary disclosures and we can provide our expert opinion with respect to every offshore voluntary disclosure option open in your case.

Contact Us to Schedule Your Confidential Consultation!

2014 OVDP Lawyers: August 4 2014 Deadline and New 50% OVDP Penalty

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2014 OVDP Lawyers identified August 4, 2014, as an important filing deadline to any U.S. taxpayers who intend to enter into the IRS Offshore Voluntary Disclosure Program (“OVDP”). This new deadline stems directly from the recent 2014 update to the OVDP. In this article, I want to briefly describe the deadline and its background, and why so many 2014 OVDP Lawyers are concerned about it.

2014 OVDP Lawyers: 2014 OVDP Background

The 2014 OVDP (really just an update to 2012 OVDP), like its predecessors, is a voluntary disclosure program created by the IRS to allow U.S. taxpayers with undisclosed foreign accounts to come forward under specific terms. The biggest advantage to participating in the OVDP is the reduction of civil penalties (especially in a willful situation) and avoidance of criminal liability.

Over the years, the offshore voluntary disclosure programs have gotten tougher and tougher, which, in the context of the 2012 OVDP, was considered by many 2014 OVDP Lawyers as unfair to taxpayers who were non-willful in their inability to comply with the U.S. tax requirements, especially FBARs (the Report of Foreign Bank and Financial Accounts).

Drawing on its own prior OVDP experience, the IRS finally agreed with the 2014 OVDP Lawyers and has made tremendous change to the OVDP on June 18, 2014. This new change is now known as the 2014 OVDP.

2014 OVDP Lawyers: The Resurrection of Willfulness vs. Non-Willfulness

One the biggest changes to the OVDP program is the resurrection of the distinction between willful and non-willful failure to comply with U.S .tax laws – a distinction that has always existed in the statutory framework of U.S. tax laws, but has been ignored by the designers of the OVDP until June 18, 2014.

As a result of this new approach to OVDP, many 2014 OVDP Lawyers now argue that 2014 OVDP is strictly reserved to U.S. taxpayers who were willful in their non-compliance with the FBAR deadlines and other U.S. international tax reporting requirements. The non-willful U.S. taxpayers now have the option of entering a Streamlined Procedure to do their voluntary disclosure.

2014 OVDP Lawyers: August 4 Increase in Offshore Penalty to 50%

Due to this re-discovered distinction between willful and non-willful conduct, the IRS now appears to have assumed that anyone entering OVDP has willfully violated U.S. tax laws. Hence, as of August 4, 2014, the IRS intends to toughen the OVDP penalties.

Under the prior 2012 OVDP, the 2014 OVDP Lawyers were familiar with a three-tier penalty structure with the penalty rates of 5%, 12.5% and 27.5%. The 2014 OVDP completely replaced this structure with a new two-tier penalty structure. Until August 4, 2014, everyone in the OVDP or submitting the preclearance letter to the IRS Criminal Investigation Unit will be subject to a 27.5% penalty.

However, beginning on August 4, 2014, any taxpayer who has an undisclosed foreign financial account will be subject to a 50% Offshore Penalty if, at the time of submitting the preclearance letter to IRS Criminal Investigation, an event has already occurred that constitutes a “public disclosure”.

2014 OVDP Lawyers: Definition of “Public Disclosure”

Many 2014 OVDP Lawyers are now becoming familiar with a new definition of what constitutes a “public disclosure” under the new 2014 OVDP rules. There are three events specifically listed by the IRS as constituting “public disclosure”.

First, there is a public disclosure of a foreign account if “the foreign financial institution where the account is held, or another facilitator who assisted in establishing or maintaining the taxpayer’s offshore arrangement, is or has been under investigation by the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person.” FAQ 7.2 for 2014 OVDP. In other words, if the your foreign bank is under the investigation from the IRS or the Department of Justice, your account is deemed to have been publicly disclosed by the IRS.

In essence, this means that U.S.-held accounts in any banks designated as Category One banks (contact 2014 OVDP Lawyers for further clarification of this definition) by the DOJ Program for Swiss Banks are deemed to have been publicly disclosed. Moreover, other banks can be easily added by the IRS to the list and any accounts held in these banks will also be subject to the 50% penalty.

Second, there is a public disclosure of a foreign account if “the foreign financial institution or other facilitator is cooperating with the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person.” Id.

Finally, there is a public disclosure of a foreign account if “the foreign financial institution or other facilitator has been identified in a court- approved issuance of a summons seeking information about U.S. taxpayers who may hold financial accounts (a ‘John Doe summons’) at the foreign financial institution or have accounts established or maintained by the facilitator.” Id. The IRS further states that examples of a public disclosure include, among others, a public filing in a judicial proceeding by any party or judicial officer, or public disclosure by the Department of Justice regarding a Deferred Prosecution Agreement or Non-Prosecution Agreement with a financial institution or other facilitator.

2014 OVDP Lawyers: June 18, 2014 List of Banks Included in the Definition of “Public Disclosure”

Here is the IRS list of these financial institutions current as of June 18, 2014 (as stated above, the IRS can expand this list at any moment):

1. UBS AG
2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
3. Wegelin & Co.
4. Liechtensteinische Landesbank AG
5. Zurcher Kantonalbank
6. swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
7. CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
9. The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates

2014 OVDP lawyers should be aware of this list when talking with their clients.

2014 OVDP Lawyers: Scope of 50% Penalty

Understanding the scope of the 50% penalty is very important for the 2014 OVDP lawyers and their clients. The crucial feature of the 50% penalty is that, once it is applied to one account or asset, the IRS will apply it to all of the taxpayer’s assets subject to the Offshore Penalty. This even includes accounts which are held at another bank and which have not been “publicly disclosed”.

Contact Sherayzen Law Office for Help With YourVoluntary Disclosure of Foreign Accounts

If you have undisclosed foreign accounts and any other foreign assets, you should contact Sherayzen Law Office for professional legal help with your offshore voluntary disclosure. The new 2014 OVDP contains many crucial deadlines and new options. Our experienced international tax law firm has helped hundreds of U.S. taxpayers throughout the world and we can help you.

Contact Us to Schedule Your Confidential Consultation.

DOJ Program for Swiss Banks: Important June 2014 Developments

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In a series of articles, we covered the U.S. Department of Justice’s new voluntary disclosure program for Swiss banks and the four filing categories involved. In June of 2014, a number of important developments regarding the DOJ Program for Swiss Banks occurred.

In this article, we will explain some of these new developments. This article is intended to provide interested individuals with general information about these developments, and does not convey tax or legal advice. If you have an offshore account, you should seek the advice of a tax attorney as significant penalties are involved. The experienced tax law firm of Sherayzen Law Office, Ltd. can assist you in your voluntary offshore disclosure and other tax and legal matters.

DOJ Program for Swiss Banks: DOJ Extends Deadline for Category 2 Swiss Banks

On June 5, 2014, the U.S. Department of Justice announced that it would extend the original June 30 deadline for category 2 Swiss banks for one month until July 31st. According to various new sources, the deadline was extended because of the difficulties Swiss banks were having in attempting to verify whether the accounts of U.S. taxpayers were undeclared or disclosed in a timely fashion to the IRS.

More than 100 Swiss banks have already applied under the DOJ program for Swiss Banks. For U.S. taxpayers with undisclosed bank accounts in Switzerland, this is highly welcome news.

Goldman Sachs and Morgan Stanley Swiss Units Apply to Enter the DOJ Program for Swiss Banks; Citigroup and J.P. Morgan Maybe Next

Recently, the Swiss units of Goldman Sachs Group Inc. and Morgan Stanley announced that they will enter the DOJ Program for Swiss Banks. According to various sources, Goldman’s Swiss private bank managed nearly $12 billion in assets as of year-end 2013. Morgan Stanley’s Swiss private bank managed about $50.7 billion- most of this amount however, was located in its branches in Hong Kong and Singapore.

Citigroup Inc. and J.P. Morgan also have Swiss operations; according to several news sources, Citibank Switzerland AG did not yet enter category 2, but this is definitely a possibility. Same is true of J.P. Morgan’s private Swiss bank.

DOJ Program for Swiss Banks: Credit Suisse Pleads Guilty

Recently, Credit Suisse pleaded guilty to conspiracy and agreed to pay $2.6 billion in a settlement with the DOJ. Please, read this article for more information.

DOJ Likely to Increase Focus on Undisclosed Accounts of US Taxpayers in the Cayman Islands, Singapore and Cook Islands, Among Others

The DOJ and the IRS have provided various indications that they intend to expand the scope of the U.S. pursuit of undisclosed foreign accounts to other major tax havens, such as Cayman Islands, Singapore, Cook Islands, Panama, et cetera.

For example, in an interview concerning the Credit Suisse case, Kathryn Keneally, former head of the Justice Department’s tax division, signaled the DOJ’s intentions to increase their focus on other tax-havens. After noting that the U.S. has traced (often, using the information collected during the DOJ Program for Swiss Banks) the money transfers to accounts held by U.S. persons in banks located in the Cayman Islands and other Caribbean countries, India, Israel, Luxembourg, and Lichtenstein, she highlighted the following: “It’s fair to say we know where the tax-haven countries are. You’ve got Singapore, you’ve got the Cook Islands… .”

The DOJ Program for Swiss Banks has provided an enormous amount of information regarding not only the Swiss bank accounts, but transfers to other countries. As Dena Iverson, a DOJ spokeswoman noted in a recent news article, “Through the program [the DOJ Program for Swiss Banks], as well as through ongoing investigations and other law enforcement tools, we are confident that we will obtain information that will lead us to account holders who have thought for too long that they can keep hiding.”

U.S. persons who hold accounts in Singapore, Cook Islands, Cayman Islands, Israel, India, Lebanon and other “target” countries should immediately seek advice in disclosing their offshore accounts. The worldwide FATCA compliance, combined with the potential of having another equivalent of the DOJ Program for Swiss Banks in any other of these countries, makes it simply reckless to wait for the DOJ and the IRS investigations.

2014 OVDP

On June 18, 2014, the IRS announced a major update to its 2012 Offshore Voluntary Disclosure Program (OVDP), which includes new opportunities and penalties. See this article for further information.

The 2014 OVDP is directly relevant to U.S. taxpayers with undisclosed accounts in Swiss Banks which are currently working within the DOJ Program for Swiss Banks, because the banks’ disclosure of the unreported accounts may substantially reduce the available voluntary disclosure options for the U.S. taxpayers who own these accounts. Moreover, the US taxpayers with undisclosed accounts in the entities that are categorized under the DOJ Program for Swiss Banks as Category 1 banks may be subject to heightened penalties under the new 2014 OVDP rules.

This is why it is very important to coordinate your voluntary disclosure with the DOJ Program for Swiss Banks.

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

If you have undisclosed foreign accounts in Switzerland, contact Sherayzen Law Office for experienced legal help. Whether or not you received a letter from a Swiss Bank pursuant to the DOJ Program for Swiss Banks, time is likely to be of critical importance for you.

Contact Us today to Schedule Your Confidential Consultation – We Can Help!

2013 FBAR is Due on June 30, 2014

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The most dangerous information report – the Report of Foreign Bank and Financial Accounts (the “FBAR”) – is due at the end of this month. The 2013 FBAR (i.e. the FBAR for the calendar year 2013) is due on June 30, 2014.

Pursuant to the Bank Secrecy Act, 31 U.S.C. §5311 et seq., the Department of Treasury (the “Treasury”) has established certain recordkeeping and filing requirements for United States persons with financial interests in or signature authority (and other comparable authority) over financial accounts maintained with financial institutions in foreign countries. If you had such a situation in 2013 and if the aggregate balances of such foreign accounts exceed $10,000 at any time during 2013, the 2013 FBAR must be filed with the Treasury.

What constitutes an account for the purpose of complying with 2013 FBAR can be a complex question. Generally, the IRS is using a very broad definition of the “account” to include the great majority of custodial situations, even those that are not usually associated with the concept of an “account” (for example, a precious metals storage or a foreign life insurance policy may have to be reported on the 2013 FBAR). You need to contact an experienced international tax attorney to determine what accounts need to be reported on your 2013 FBAR.

The FBAR must be filed by June 30 of each relevant year, including this year (2013). Thus, the 2013 FBAR must be received by the Treasury by June 30, 2014. This rule is contrary to your regular tax returns where the mailing date determines whether the filing is timely. There are no extensions available – the 2013 FBAR must be received by June 30 or it will be considered delinquent.

If the 2013 FBAR becomes delinquent, it may be subject to severe penalties.

Contact Sherayzen Law Office for FBAR Assistance

If you have any questions or concerns regarding whether you need to file the 2013 FBAR, please contact Sherayzen Law Office directly. If you have not previous filed FBARs and you were required to do so, you may be subject to severe penalties and you may need to do some form of a voluntary disclosure.

If this is the case, you need to contact our experienced international tax law office to schedule a consultation as soon as possible. Attorney Eugene Sherayzen will assess your situation, determine your potential FBAR liability, explain the available options, prepare all of the required tax forms and the necessary legal documentation, guide you through this complex process of voluntary disclosure, and vigorously represent your interests during your negotiations with the IRS.