2012 FBAR is Due on June 30, 2013

/in , /by

One of the most important tax compliance forms for businesses and individuals is the Report of Foreign Bank and Financial Accounts (the “FBAR”), FinCEN Form 114 Formerly TD F 90-22.1. Pursuant to the Bank Secrecy Act, 31 U.S.C. §5311 et seq., the Department of Treasury (the “DOT”) 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 the aggregate balances of such foreign accounts exceed $10,000 at any time during the relevant year, the FBAR must be filed with the DOT.

The FBAR must be filed by June 30 of each relevant year, including this year (2013). Thus, the 2012 FBAR must be received by the DOT by June 30, 2013. 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 FBAR must be received by June 30 or it will be considered delinquent.

If the 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 FBAR or how to prepare the form, please contact Sherayzen Law Office directly. If you have not previous filed the 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. In such case, you need to contact our experienced international tax attorneys 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.

Failure to Conduct Voluntary Disclosure and Potential Penalties: 2013 Update

/in , , /by

Failure to conduct voluntary disclosure may mean heavy penalties for U.S. taxpayers are not in compliance with international tax laws established by U.S. government. In this article, I summarize some of the key penalties that such non-compliant U.S. taxpayers may face once the IRS finds them.

Penalties in General

In general, if the IRS verifies that a taxpayer failed to disclose his offshore financial accounts and foreign entities (and the income from these sources), the taxpayer may be subject to severe civil and criminal penalties. In addition to income-related accuracy related penalties, the IRS may also assess additional fraud-related penalties, FBAR penalties and foreign asset reporting penalties (with interest). Combined, all of these penalties and interest may exceed the actual value of nondisclosed assets and foreign bank accounts. In the worst-case scenario, a criminal prosecution may be initiated against such noncompliant taxpayers.

Finally, the voluntary disclosure process – which would otherwise be a far less painful way to deal with this problem – is automatically unavailable for taxpayers as soon as they are subject to IRS investigation.

Let’s discuss the penalties in more detail.

Accuracy-Related and Failure to File and Pay Penalties

An accuracy-related penalty on underpayments is imposed under IRC § 6662. Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty.

If a taxpayer fails to file the required income tax return, a failure to file (“FTF”) penalty may be imposed pursuant to IRC § 6651(a)(1). The penalty is generally five percent of the balance due, plus an additional five percent for each month or fraction thereof during which the failure continues may be imposed. The total penalty will not exceed 25 percent of the balance due.

If a taxpayer fails to pay the amount of tax shown on the return, a failure to pay (“FTP”) penalty may be imposed pursuant to IRC § 6651(a)(2). The penalty may be half of a percent of the amount of tax shown on the return, plus an additional half of a percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding the total of 25 percent of the balance due.

Fraud Penalties

Fraud penalties may imposed under IRC §§ 6651(f) or 6663. Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that may essentially amount to 75 percent of the unpaid tax.

FBAR Penalties

The most severe civil penalties are likely to come from non-compliance with FinCEN Form 114 formerly Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”) non-compliance. Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation (see 31 U.S.C. § 5321(a)(5)). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation. For more detailed discussion of the FBAR civil penalties, I refer you to this article.

Form 8938 Penalties

Form 8938 is a newcomer to the world of tax penalties. The Form was born out of the HIRE and came into existence only starting the tax year 2011. Generally, failure to file Form 8938 carries a penalty of $10,000; however, other additional penalties may be applicable (for more detailed discussion of Form 8938 penalties, please read this article).

Penalties for Failure to File Other Information Returns

In addition to these common penalties, additional penalties may apply depending on the particular circumstances of the non-compliant taxpayer. I will summarize a few key penalties here.

Form 5471

If the taxpayer belongs to one of the four categories of required filers of Form 5471 (Information Return of U.S. Persons with Respect to Certain Foreign Corporations) and he fails to do so, he generally faces a penalty of $10,000 for each return. For a more detailed discussion of Form 5471 penalties, review this article.

Form 8865

Where the taxpayer is required to file Form 8865 (Return of U.S. Persons With Respect to Certain Foreign Partnerships) and he fails to do so, the non-compliant taxpayer generally faces a $10,000 per each unfiled return with additional penalties possible. If the taxpayer transferred property to a controlled foreign partnership and he fails to file Form 8865, he faces additional penalties of 10 percent of the value of any transferred property; the penalty is limited to $100,000. Please, review this article for a more detailed discussion of Form 8865 penalties.

Other Common Information Returns

Depending on a taxpayer’s situation, he may face additional penalties for failure to file Forms 926, 3520, 3520-A, 5472 and other forms.

Criminal Prosecution

In the worst-case scenario, a criminal prosecution may be conducted by the IRS. Huge penalties and potential jail time are the possible in case of tax evasion.

Possible criminal charges related to tax returns include tax evasion (26 U.S.C. § 7201), filing a false return (26 U.S.C. § 7206(1)) and failure to file an income tax return (26 U.S.C. § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322 (see this article for discussion of the FBAR criminal penalties)

A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.

Contact Sherayzen Law Office for Help With Offshore Voluntary Disclosure

If you have undisclosed offshore accounts or foreign entities, contact Sherayzen Law Office for help as soon as possible. We are an international tax law firm that specializes in helping U.S. taxpayers in the United States and throughout the world to avoid the nightmare scenario and properly conduct disclosure of offshore assets, foreign bank accounts, foreign entities and unreported foreign income to the IRS.

If you believe that you may not be in full compliance with U.S. tax laws, the worst course of action is to do nothing and wait for the IRS to discover your noncompliance. Once this happens, your options are likely to be severely limited and the penalties a lot higher. Therefore, contact us so that we can help you with your international tax problems. Remember, all calls and e-mails are confidential.

2012 OVDP: Principal Purpose of the Program

/in , , /by

As 2012 OVDP (Offshore Voluntary Disclosure Program) now closed enters its second tax season, it is important to review once again the reasons behind the existence of the program, what it offers to the IRS and how it may benefit currently non-compliant U.S. taxpayers.

Focus on International Tax Compliance

Since 2003, the IRS has conducted a number of voluntary disclosure programs for U.S. taxpayers with undisclosed foreign accounts or entities and undisclosed income. It is important to emphasize that these programs were not part of the traditional IRS voluntary disclosure program with respect to domestic income. The focus of each offshore voluntary disclosure program is on international tax compliance, particularly Report on Foreign Bank and Financial Accounts (the “FBAR”) and other informational returns such as Forms 5471, 8865, 8868 and so on.

It is important to note that with each new program the rules are becoming more and more stringent as well as complex. The idea behind the tougher terms of each succeeding program is to reward early disclosure and induce taxpayers to enter a voluntary disclosure program as soon as possible.

2012 OVDP

The 2012 OVDP came into existence less than half a year after the tremendous success of the 2011 OVDI (which also came two years after a very profitable 2009 OVDP). It is obvious that the IRS considered the existence of such voluntary disclosure programs a vital part of its international tax compliance efforts.

As expected, 2012 OVDP came in with tougher terms (for example, the highest penalty category is 27.5% instead of 25% as it was under 2011 OVDI rules), closed some 2011 OVDI loopholes and created a more complex and detailed set of rules. However, 2012 OVDP also has some unique features.

The most prominent of these features is that there is no official end to the program – this is the very first time in the history of the voluntary disclosure programs. At the time, the IRS warned that it can end the program at any time, creating a great sense of uncertainty and urgency for the taxpayers who wish to enter the program.

Why the IRS Created the 2012 OVDP

The most obvious reason (and the most repeated one in various articles by commentators) for why the IRS wants a voluntary disclosure program like 2012 OVDP in place is money – these programs brought in billions of dollars to the U.S. treasury. While this is an important reason, I believe that the reasoning behind the 2012 OVDP is much more complex.

In addition to bringing more money to the cash-starved U.S. government and allowing people to become tax-compliant with the understanding that their penalties will be definite and limited, there are two other primary reasons behind the 2012 OVDP and all other similar voluntary disclosure programs. First, the voluntary disclosure programs have a tremendous collateral impact on the overall international tax compliance. The collateral effect is reflected not only in assuring that the persons who go through the voluntary disclosure are likely to continue to comply with U.S .tax laws in the future, but also in the tremendous publicity of the program and the U.S. tax laws.

However, the most curious collateral product of the 2012 OVDP is the fear that induces wider tax compliance and more entrees into the voluntary disclosure program. It seems paradoxical that a voluntary disclosure would create this apprehensive feeling, but it is very logical once you understand that this is not a fear of the 2012 OVDP itself, but the terror of seeing widespread compliance which singles out the non-compliant taxpayers more and more with each new OVDP participant.

The second reason behind the voluntary disclosure programs is information gathering. Each 2012 OVDP participant brings a treasure trove of information about where they keep their money, the level of complicity by foreign banks, the particular foreign and domestic advisors involved in promoting international tax non-compliance, and other valuable information. This information allows the IRS to establish the overall patterns of non-compliance (both geographic and with respect to particular individuals and organizations), identify the next investigation targets and amass evidence for future prosecutions.

IRS is currently sitting on a mountain of data and it is inevitable that this information will be used in the future against non-compliant U.S. taxpayers and their foreign advisors. Already in 2012, we observed aggressive IRS moves in Liechtenstein and Israel as well as engagement of over 50 jurisdictions around the world regarding FATCA compliance. My prediction is that this trend of expanded enforcement into other countries will continue in 2013 and will result in larger number of prosecutions.

What is the Benefit of 2012 OVDP for U.S. Taxpayers

The 2012 OVDP does not only benefit the IRS, but also certain U.S. taxpayers. The benefit is at least three-fold. First, for certain U.S. taxpayers 2012 OVDP is the only way to avoid tremendous penalties and criminal prosecution by the IRS. Equally important is the fact that a taxpayer enters the OVDP program with an ability to calculate(with reasonable degree of certainty) the total cost of resolving all offshore tax issues. However, the decision to enter the OVDP must be made after all of the facts are analyzed and the taxpayer is aware of the consequences of entering the 2012 OVDP.

Second, while generally very rigid, the 2012 OVDP program has a certain degree of flexibility built into its penalty structure. The number of penalty categories and the various rules of the program allow international tax attorneys to determine the best mode of the voluntary disclosure and develop the strategies to implement this particular voluntary disclosure scenario.

Finally, 2012 OVDP allows international tax attorneys to determine the alternative voluntary disclosure ways. For example, Q&A #17 officially supports the long-standing unofficial policy of the IRS that no FBAR penalties are likely if there is additional U.S. tax liability as a result of voluntary disclosure. Moreover, the very fact that 2012 OVDP delineates certain analytical categories places additional tools for strategy development in the hands of the attorneys who seek alternative ways of bringing U.S. taxpayers into full compliance with U.S. tax laws under the existing legal structure outside of the 2012 OVDP.

Contact Sherayzen Law Office for Help with Voluntary Disclosure

If you have undisclosed foreign account or foreign entities, contact Sherayzen Law Office for help with your voluntary disclosure. Our experienced international tax firm will thoroughly analyze your case, assess your FBAR liability as well as other applicable penalties, identify the options available in your case, and work with you every step of the way until your voluntary disclosure is finished. We have helped taxpayers around the world to do various types of voluntary disclosures, including the official Offshore Voluntary Disclosure Programs and Initiatives.

FBAR Filing: FinCEN’s Third Extension for Certain Signatory Authority Filers

/in , /by

In FinCEN Notice 2012-2, the Financial Crimes Enforcement Network (FinCEN) announced a third extension of time for certain Report of Foreign Bank and Financial Accounts (FBAR) filings in light of ongoing consideration of questions regarding the filing requirement and its application to individuals with signature authority over but no financial interest in certain types of accounts. The new extended deadline is set for June 30, 2014.

This extended filing deadline applies only to the following classes of individuals:

1). An employee or officer of a covered entity (see 31 C.F.R. § 1010.350(f)(2)(i)-(v)) who has signature or other authority over and no financial interest in a foreign financial account of another entity more than 50 percent owned, directly or indirectly, by the entity (a “controlled person”). For this purpose, a “controlled person” is a U.S. or foreign entity that is more than 50% owned (directly or indirectly) by an excepted entity.
2). An employee or officer of a controlled person of a covered entity (see 31 C.F.R. § 1010.350(f)(2)(i)-(v)) who has signature or other authority over and no financial interest in a foreign financial account of the entity or another controlled person of the entity.
3). An employee or officer of an investment advisor registered with the Securities and Exchange Commission who has signature or other authority over and no financial interest in a foreign financial account of persons that are not investment companies registered under the Investment Company Act of 1940.

Notice that categories 1 and 2 do not apply to companies that are not publicly traded or not SEC-registrants.

This extension comes after a series of earlier extensions by FinCEN. On February 14, 2012, FinCEN issued Notice 2012-1 to extend the filing date for FinCEN Form 114 Formerly TD F 90-22.1, FBAR, for certain individuals with signature authority over but no financial interest in one or more foreign financial accounts to June 30, 2013. This Notice was preceded by two earlier extensions: on May 31, 2011, FinCEN issued Notice 2011-1 (revised on June 2, 2011) to extend to June 30, 2012, the due date for filing the FBAR for certain individuals with signature authority over but no financial interest in one or more foreign financial accounts, specifically individuals whose FBAR filing requirements may be affected by the signature authority filing exceptions in 31 CFR § 1010.350(f)(2)(i)-(v). On June 17, 2011, FinCEN issued Notice 2011-2 similarly extending the FBAR filing due date to June 30, 2012, for certain employees or officers of investment advisers registered with the Securities and Exchange Commission who have signature authority over but no financial interest in certain foreign financial accounts.

The extension contained in FinCEN Notice 2012-2 is the third filing extension for individuals with signature authority over but no financial interest in certain types of accounts. It covers not only the reporting of signature authority held by such persons for 2012, but also for all other years for which filing was previously extended to June 30, 2012, under FinCEN Notices 2011-1 and 2011-2.

It is important to note, however, that all other taxpayers who are required to file an FBAR must still do so by June 30, 2013.

FBAR Attorney

/in , /by

If you are looking for an attorney to help you with your FBAR issues, contact Sherayzen Law Office.

Sherayzen Law Office is an international tax and business law firm that specializes in FBAR compliance among other international tax issues. Our office is located in Minneapolis, but we have clients throughout the United States and overseas.

Helping U.S. taxpayers who have FBAR issues is one of our most important specializations. FinCEN Form 114 formerly Form TD F 90-22.1, the Report of Foreign Bank and Financial Accounts (commonly known as the “FBAR”), is not the most complex form in the Internal Revenue Code, but it is definitely one of the most severe forms when it comes to penalties. A lot of U.S. taxpayers either do not know about this form, do not realize how important it is, or they already realized that they should have filed the FBAR earlier and do not know how to get out of the vicious cycle of non-compliance.

Our international tax firm is highly experienced in these delinquent FBAR matters, including the voluntary disclosure process. We will analyze your case thoroughly, determine your FBAR liability and identify your voluntary disclosure options. Once you make your choice with respect to your voluntary disclosure option, we will create and implement a customized case strategy, including preparation of all of the necessary tax forms and legal briefs.

Clients of Sherayzen Law Office enjoy the personal attention of Mr. Eugene Sherayzen, the firm’s owner, who will be working with you throughout the process in order to make sure that your case proceeds efficiently. He is easily accessible by phone and email throughout the case.

We believe that each case is unique, especially in such complex matters as FBAR voluntary disclosure. Our international tax law firm will be looking for the unique features in your particular fact pattern to determine the most expeditious and favorable manner to proceed with your case.

One the biggest problems facing U.S. taxpayers in finding the right FBAR representation at this point is the tendency among some accounting firms and even law firms to disregard the special circumstances of a case and automatically channel their clients into the 2012 OVDP (Offshore Voluntary Disclosure Program) at the highest penalty rates with the idea that they will figure out later what the strategy of the case will be and whether the taxpayer needs to opt-out of the program.

We believe that this is an incorrect approach which completely disregards the individual circumstances of each taxpayer and may subject them to an unnecessarily high penalties and additional legal and accounting fees. Each case should be thoroughly analyzed at the beginning of the process before the taxpayers enters the 2012 OVDP, not in the middle or even at the end of the voluntary disclosure.

Contact Sherayzen Law Office for Help with FBARs

If you have any undisclosed foreign financial accounts, contact Sherayzen Law Office as soon as possible for an individual, comprehensive, creative and ethical approach to your voluntary disclosure process.