FBAR Litigation to Skyrocket in 2017 & 2018 | FBAR Lawyer & Attorney

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After the implementation of FATCA in 2014, Sherayzen Law Office made a prediction that there would be a major increase in FBAR litigation a few years later once the IRS is able to process data obtained through FATCA and the Swiss Bank Program. This prediction is now becoming a reality as the US Department of Justice (“DOJ”) is filing lawsuits related to FBAR penalties in unprecedented numbers.

When Should the Taxpayers Expect to See Increase in FBAR Litigation?

The process has already started. The DOJ is already filing new FBAR litigation cases and it is working closely with the IRS to prepare a large number of additional FBAR cases.

In fact, the second half of 2017 and the first half of 2018 will be the period when the number of FBAR litigation cases will skyrocket, achieving a new historical high. Most of these lawsuits will likely be criminal while others will be civil, including attempts to collect FBAR penalties.

Will Non-Willful FBAR Penalty Cases Be Affected by the Increase in FBAR Litigation?

Yes, taxpayers who were assessed non-willful FBAR penalties will also be affected. We expect, however, that the majority of the new cases will be those concerning willful and even criminal FBAR penalties.

Can a Non-Willful FBAR Penalty Case Turn Into Willful FBAR Penalty Case as a Result of FBAR Litigation?

Such a possibility exists, especially in cases where the IRS imposed non-willful penalties without having sufficient information to assess willful penalties. Since the DOJ will try to argue that the cases should be tried de novo, it is possible that new information obtained during the discovery stage of a case may result in sufficient evidence for the DOJ to argue that willful FBAR penalties should be imposed.

Therefore, it is important to bring in an international tax attorney as early as possible into your case to assess the possibility of the DOJ turning a non-willful case into a willful one.

Can the Recent Increase in FBAR Penalties Influence a Taxpayer’s Exposure as a Result of FBAR Litigation?

Recently, the FBAR penalties experienced a significant increase as a result of the Congress-mandated adjustment to inflation. The increase should not affect any penalties assessed prior to November 2, 2015. The FBAR Penalties imposed after that date are likely to be affected by FBAR Litigation, because the DOJ may sue for the adjusted amount of penalties.

What Should I do If the DOJ Files Compliant Against Me in a US District Court?

If you receive a compliant from the DOJ (acting on behalf of the United States of America), contact Sherayzen Law Office as soon as possible for professional help. Mr. Sherayzen is an experienced international tax lawyer who can help you determine on how to best deal with the DOJ lawsuit, assess your chances of success and help you with the litigation of the case.

Contact Us Today to Schedule Your Confidential Consultation.

IRS Announces 2018 Pension Plan Limitations | Tax Lawyer Update

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On October 27, 2017, the IRS announced the cost of living adjustments affecting 2018 Pension Plan limitations.

2018 Pension Plan Limitations: Summary of Main Changes

1. The first main change in 2018 Pension Plan Limitations affects all employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. In 2018, employees can contribute up to $18,500 into these plans. This amount represents a $500 increase from the 2017 contribution limitation of $18,000.

2. The second major change in 2018 Pension Plan Limitations is the modification of income ranges concerning eligibility to make deductible contributions to traditional IRAs. Here are the new 2018 phase-out ranges:

Single Taxpayers (covered by a workplace retirement plan): $63,000 to $73,000 (up from the 2017 range of $62,000 to $72,000);
Married Filing Jointly (covered by a workplace retirement plan): $101,000 to $121,000 (up from the 2017 range of $99,000 to $119,000).
Taxpayer not covered by a workplace retirement plan, but who is married to someone who is covered: $189,000 and $199,000 (up from the 2017 range of $186,000 and $196,000).

No changes for a married individual filing a separate return, but who is covered by a workplace retirement plan. The phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

3. The third change in 2018 Pension Plan Limitations affects the modification of income ranges concerning eligibility to make contributions to Roth IRA. Here are the new 2018 phase-out ranges:

Single and Head of Household Taxpayers: $120,000 to $135,000 (up from the 2017 range of $118,000 to $133,000);
Married Couples Filing Jointly: $189,000 to $199,000 (up from the 2017 range of $186,000 to $196,000).

No change in the phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA. Such contributions are not subject to an annual cost-of-living adjustment and remain at the range of $0 to $10,000.

4. The fourth change in 2018 Pension Plan Limitations affects the modification of income range concerning eligibility for the Retirement Savings Contributions Credit. In 2018, the income limits will be:

Married Couple Filing Jointly: $63,000 (up from $62,000 in 2017);
Heads of Household: $47,250 (up from $46,500 in 2017);
Singles and Married Individuals Filing Separately: $31,500 (up from $31,000 in 2017).

2018 Pension Plan Limitations: Summary of Main Unchanged Limitations from 2017

1. IRA Annual Contribution Limit: remains unchanged at $5,500.

2. IRA additional catch-up contribution for individuals aged 50 and over: remains at $1,004.40 (not subject to annual cost-of-living adjustment).

3. 401(k), 403(b) and most 457 plans and the federal government’s Thrift Savings Plan catch up contribution limit for employees aged 50 and over: remains unchanged at $6,000.

Czech Bank Accounts: Lawyer Finds Compliance Problems With FBAR and FATCA

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For years, the Czech Republic has held a position within the top fifteen countries among our firm’s voluntary disclosure clients. At the end of May and early June of 2017, our firm’s owner, international tax attorney Eugene Sherayzen, made a trip to the Czech Republic to find out why there are so many clients with unreported Czech Bank accounts.

Ceska Narodni Banka

Ceska Narodni Banka

General Lack of Awareness of FBAR and FATCA With Respect to Czech Bank Accounts

While Mr. Sherayzen found Prague an astonishingly beautiful city, his investigation of FBAR and FATCA awareness confirmed what he already supposed for years – there are important gaps in awareness of these US tax compliance requirements. The results of his investigation also showed that while there were some signs of improvement in FATCA awareness, FBAR was still generally an unknown form.

While Mr. Sherayzen’s investigation was not done using any scientific method and his targeted sample cannot be considered as a properly representative survey, its results are nonetheless alarming.

They are particularly important for Czech citizens who are also US citizens or US permanent residents residing in the United States, especially if they opened their Czech bank accounts with Czech passports prior to moving to the United States. Mr. Sherayzen’s investigation identified this group of individuals as particularly vulnerable to failing to comply with US tax requirements, including FBAR.

Czech Bankers Often Do Not Inform Their Clients of FBAR and FATCA Obligations With Respect to Czech Bank Accounts

Additionally, Mr. Sherayzen found a general lack of awareness of the obligation of foreign bankers to inform their clients about FATCA and, especially, FBARs. Of the five banks chosen, Mr. Sherayzen was unsatisfied with level of FATCA preparedness of the Czech bankers. These results further supported Mr. Sherayzen’s original supposition that the Czech bankers’ lack of proper education about US tax requirements exacerbated and, in many instances, were directly responsible for his clients’ unawareness of their FBAR and FATCA obligations.

These results are too recent at this point and need further analysis and confirmation in the future. Yet, it is clear that all US persons with Czech bank accounts need to urgently re-evaluate their current US tax compliance, especially if it is based on advice from Czech bankers.

Contact Sherayzen Law Office for Help With US Tax Compliance Concerning Czech Bank Accounts

If you have undisclosed Czech bank accounts or any other foreign assets, contact Sherayzen Law Office as soon as possible. Failure to do it before the IRS initiates an investigation may result in imposition of draconian FBAR penalties.

We have helped hundreds of US taxpayers around the world to bring their tax affairs into fully compliance with US laws. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

4th Quarter 2017 Underpayment, Overpayment & PFIC Interest Rates

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On September 8, 2017, the IRS announced that the 4th Quarter 2017 underpayment and overpayment interest rates will remain the same as they were in the third quarter of 2017. The IRS underpayment interests also govern the PFIC interest rates under the default Section 1291 method of calculation. PFIC interest rates are very important not only to taxpayers who currently hold PFICs, but also to the US taxpayers who are participating in the Streamlined Domestic Offshore Procedures and, to a lesser extent, the IRS Offshore Voluntary Disclosure Program (“OVDP”) now closed.

Recent History of the IRS Underpayment, Overpayment and PFIC Interest Rates

Following the global financial meltdown, the Federal Reserve quickly dropped its interest rates to almost zero. The IRS underpayment, overpayment and PFIC interest rates are set to follow the Federal Reserve short-term rates on a quarterly basis.

For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

Hence, from the 4th quarter of 2011 through the first quarter of 2016, the IRS underpayment, overpayment and PFIC interest rates remained at 3%. Once the Federal Reserve started to raise its short-term rates, however, the IRS raised the interest rates in the second quarter of 2016, from 3% to 4%. Since then, the rates remained the same.

4th Quarter 2017 IRS Underpayment, Overpayment and PFIC Interest Rates

4th quarter 2017 IRS underpayment, overpayment and PFIC interest rates will be as follows:

four (4) percent for overpayments (two (3) percent in the case of a corporation);
four (4) percent for underpayments;
six (6) percent for large corporate underpayments; and
one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.

These interest rates were computed based on the federal short-term rate determined during July of 2017 to take effect on August 1, 2017, plus daily compounding. The 4th Quarter IRS underpayment, overpayment and PFIC interest rates will apply during the period of October 1, 2017, through December 31, 2017.

Specified Foreign Financial Assets | Form 8938 International Tax Lawyers

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Specified Foreign Financial Assets is one of the most important terms in contemporary US international tax law. In this article, I will explore what these Specified Foreign Financial Assets are and why they play such an important role in modern US international tax compliance.

Specified Foreign Financial Assets and FATCA

In order to understand the significance of the Specified Foreign Financial Assets, we must turn to one of the most important US tax laws called Foreign Account Tax Compliance Act or FATCA.

FATCA was signed into law in 2010 and it immediately became the most important development in international taxation since at least 1970s, if not all the way to the end of the Second World War. There are three parts of FATCA that made it such a revolutionary development in international tax law. The first part of FATCA requires all foreign financial institutions (FFIs) to report to the IRS, directly or indirectly, Specified Foreign Financial Assets (be careful, this concept can be modified by a FATCA implementation treaty to include and exclude various foreign assets) owned by US persons. In essence, it meant that the world financial community would now serve as an IRS informer, providing the third-party reporting of financial assets owned by US persons.

In order to enforce this “obligation”, the second part of FATCA imposed a 30% penalty on the gross amount of a transaction whenever the transaction is related to an institution that is not compliant with FATCA. Such a huge penalty was meant to force all FFIs to become FATCA-compliant and, to a large extent, this goal has been attained.

With the third-party reporting secured by the first two parts of FATCA, the third part of FATCA imposed a new reporting requirement, Form 8938, on certain categories of US taxpayers who would fall within the categories of Specified Individuals and (starting 2016) Specified Domestic Entities. FATCA Form 8938 forced these Specified Persons to directly report their Specified Foreign Financial Assets with their US tax returns.

Specified Foreign Financial Assets: General Definition

In general, Specified Foreign Financial Assets include: foreign financial accounts and assets that are held for investment and not held in an account maintained by a financial institution. The concept of “assets held for investment and not held in an account” covers stocks or securities issued by anyone who is not a US person, any interest in a foreign entity, any financial instrument or contract that has an issuer or counterparty that is other than a US person, stock issued by a foreign corporation, an interest in a foreign trust or foreign estate and a capital or profits interest in a foreign partnership.

In other words, definition of the Specified Foreign Financial Assets is so broad that it applies to virtually any financial instrument or security one can imagine as long as one of the counterparties and/or issuers is a foreign person. It also includes pretty much any ownership interest in a foreign business entity as well as a beneficiary interest in a foreign trust. Therefore, it is always prudent to contact an international tax attorney to confirm whether your particular investment is covered by the definition of the Specified Foreign Financial Assets.

Specified Foreign Financial Assets: Additional Non-Exclusive Lists of Assets

Additionally, the instructions to Form 8938 specifically state that Specified Foreign Financial Assets encompass an interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement with a foreign counterparty. Specified Foreign Financial Assets also include a note, bond, debenture, or other form of indebtedness issued by a foreign person. Finally, options and other derivative instructions with a foreign counterparty or issuer are also included in the definition of Specified Foreign Financial Assets.

Specified Foreign Financial Assets: Influence of FATCA Implementation Treaties

Despite the broad general definition of Specified Foreign Financial Assets and despite the “laundry” list of assets specifically identified above, one should always look at a specific FATCA implementation treaty in order to verify whether an asset is considered to fall within the definition of Specified Foreign Financial Assets. In particular, one must have extra care with foreign retirement accounts. During the negotiation of FATCA Implementation Treaties, countries often insisted that particular types of retirement accounts should be excluded from FATCA reporting (the United Kingdom was particularly successful in this respect).

A word of caution: even if an asset is excluded from FATCA reporting, it does not automatically mean that it would also be excluded from FBAR reporting. It is possible to have a financial asset reportable exclusively on FBAR, but not Form 8938.

Contact Sherayzen Law Office for Professional Help with Reporting of Specified Foreign Financial Assets on Form 8938

If you have any of the Specified Foreign Financial Assets listed above, contact Sherayzen Law Office for professional help. In addition to annual tax compliance, our firm can help you with the offshore voluntary disclosure with respect to any delinquent Forms 8938 which you have not timely filed in any of the prior years.

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