offshore voluntary disclosure lawyers Minneapolis

Post-OVDI Options: What to Do If You Cannot Make the OVDI Deadline

Introduction:  OVDI Deadline is August 31, 2011

On February 8, 2011, the Internal Revenue Service initiated  2011 Offshore Voluntary Disclosure Initiative (OVDI), a special voluntary disclosure initiative, designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes.  While this program is not available (or even desirable) for everyone, the OVDI program offered many taxpayers a way to bring themselves back into compliance with U.S. tax laws.

The program is only available, however, for taxpayers who apply to be accepted into the program prior to August 31, 2011.  It is then possible to get an extension to file the documents, even though there is no guarantee that the extension will be granted, especially for late filers.

Voluntary Disclosure After OVDI

So, what can you do if you cannot make the OVDI deadline?  Is any type of voluntary disclosure precluded if you cannot apply for the OVDI by August 31?

The answer is no.  Other types of voluntary disclosure will be available after August 31, 2011.  It is important to emphasize, however, that the OVDI provides a degree of stability and certainty of FBAR penalties that are unlikely to be matched by other voluntary disclosure options.

Traditional IRS Voluntary Disclosure 

The chief post-OVDI voluntary disclosure program will be Traditional IRS Voluntary Disclosure.  While it will not offer the same certainty of the FBAR penalties as OVDI currently does with its tiered penalty structure, the Traditional Voluntary Disclosure will be particularly useful for taxpayers who potentially face criminal charges and willful penalties.

Doing Nothing Is Dangerous

It is important to emphasize that, whether or not you will be able to take advantage of the OVDI program, the most dangerous option for you is to do nothing. Taxpayers, who hide this offshore assets and do not come forward, are much likely to face far higher penalty scenarios as well as the possibility of criminal prosecution.

Contact Sherayzen Law Office NOW To Solve Your Tax Issues

Sherayzen Law Office can help you resolve all of your tax compliance issues.  Our experienced voluntary disclosure tax firm will guide you through the voluntary disclosure process and vigorously advocate your position, vying for the best outcome possible in your case.  E-mail or call us NOW!

OVDI Deadline: August 31, 2011

This is a reminder that the  2011 Offshore Voluntary Disclosure Initiative (OVDI) will expire on August 31, 2011. The 2011 OVDI was announced on February 8, 2011, and follows the 2009 Offshore Disclosure Program (OVDP). The 2011 initiative offers clear benefits to certain taxpayers who currently face far higher penalties along with potential criminal charges if their hidden offshore assets are detected by the IRS.  Whether your case falls within this category of taxpayers should be determined by an international tax attorney who is familiar with the FBAR penalty structure.

Those taxpayers who have not disclosed their foreign accounts and income are unlikely to sustain this for much longer without violating additional tax reporting requirements.  This is because the new foreign account reporting requirements are being phased in over the next few years, making it ever tougher to hide income offshore.  Moreover, the IRS continues its focus on banks and bankers worldwide that assist U.S. taxpayers with hiding assets overseas, putting the pressure on the foreign financial institutions to report noncompliant taxpayers.

The 2011 OVDI program is designed to bring taxpayers back into compliance with the U.S. tax system.  Under the initiative, there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. Some taxpayers will be eligible for 5 or 12.5 percent penalties in certain narrow circumstances.  It is likely that your foreign assets, such as rental real estate the income from which has not been disclosed or which was purchased with illegal funds, will be included in the 25-percent penalty calculation.

Participants also must pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. All original and amended tax returns must be filed by the deadline.

If a taxpayer is interested in going through the 2011 OVDI, he must hurry.  He has to be accepted into the program before he can take advantage of it.  Therefore, these last few weeks left before the August 31, 2011 deadline is the last opportunity to apply to the program.

Contact Sherayzen Law Office NOW to Discuss Your Voluntary Disclosure Case

If you have undisclosed foreign financial accounts and have not reported your foreign income to the IRS, call Sherayzen Law Office immediately to discuss your case.  Our experienced voluntary disclosure tax firm will determine whether the 2011 OVDI program fits well your particular case, discuss with you the alternatives, and guide you through this highly complex voluntary disclosure process.

Remember, it does not matter whether you are located in another state or outside of the United States – we can help!

FBAR: Exclusion of Personal and Homeowner’s Lines of Credit

Often, I receive specific questions from my clients with respect to whether certain types of accounts should be reported on the Report on Foreign Bank and Financial Accounts (“FBAR”). Recently, one of my clients wanted to know whether he needs to report his personal and homeowner’s lines of credits on the FBAR.

A little disclaimer before I deal with the main subject of this essay. In this legal note, I do not discuss the situations where you loaned the money to someone else. This essay focus strictly on the money loaned to you.

Generally, whether the money loaned to you should be reported on the FBAR is a highly fact-dependent situation. Most such loans are not reported on the FBAR, because these loans are not considered assets. However, if a loan can be considered as an asset because of the way it is structured or because it is a part of a larger financial arrangement, the loan needs to be reported on the FBAR. You should discuss this situation with an international tax attorney who specializes in FBARs.

The situation with respect to personal and homeowner’s lines of credit, however, is much clearer. The IRS does not regard these lines of credit as assets and does not require you to disclose them on the FBAR. While this is a general rule, you should call us to discuss your specific situation in order to make sure that nothing in your situation makes these lines of credit reportable.

Contact Sherayzen Law Office to Get FBAR Help

If you have any questions with respect to FBAR or voluntary disclosure, Sherayzen Law Office can help. Our international tax firm has guided our clients throughout the United States through voluntary disclosure and FBAR reporting, making sure that the rights of our clients are protected and they pay only fair taxes and penalties.

2011 Offshore Voluntary Disclosure Initiative vs. Statute of Limitations

As I already described in an earlier article, the IRS instituted a new voluntary disclosure program, called 2011 Offshore Voluntary Disclosure Initiative (“OVDI”). One of the most problematic areas under OVDI is the length of the examination period.

Agreeing to assessment of taxes and penalties for all voluntary disclosure years is part of the resolution offered by the IRS for resolving offshore voluntary disclosures. The OVDI disclosure period is 2003 through 2010 – eight years in total.

This contrasts greatly with the general three-year statute of limitations for IRS examination. Therefore, a tax attorney should consider all options prior to engaging in OVDI in order to avoid subjecting his client to unnecessary penalties.

One of the major factors in electing quiet disclosure versus OVDI is considering whether one or more of the numerous exceptions to the general IRS statute of limitations may apply. For example, if the IRS can prove a substantial omission of gross income, the statute of limitations is likely to be expanded to six years. Moreover, if there was a failure to file certain information returns, such as Form 3520 or Form 5471, the statute of limitations will not have begun to run. If the IRS can prove fraud, there is no statute of limitations for assessing tax. In addition, the statute of limitations for asserting FBAR penalties is six years from the date of the violation, which would be the date that an unfiled FBAR was due to have been filed. See 31 U.S.C. § 5321(b)(1).

Obviously, other factors should be considered before the decision to engage into OVDI is made. The chief factor would of course be the likelihood of criminal prosecution if the taxpayer fails to make use of OVDI. Engaging in voluntary disclosure pursuant to OVDI virtually eliminates possibility of criminal prosecution.

These factors aside, though, close analysis of the IRS statute of limitations is one of the most important considerations of whether to engage in OVDI.

Contact Sherayzen Law Office NOW!

Sherayzen Law Office can help. Our international tax firm has guided our clients throughout the United States through a voluntary disclosure process, making sure that the rights of our clients are protected and they pay only fair taxes and penalties.

Failure to Conduct Voluntary Disclosure: Possible Penalties

The IRS just instituted a new voluntary disclosure program for taxpayers who have offshore accounts or assets and who failed to properly report them to the IRS and pay appropriate U.S. taxes. It is called 2011 Offshore Voluntary Disclosure Initiative (“2011 OVDI”). While 2011 OVDI is not available for everyone and some particular circumstances of a case may determine whether it is advisable to go through this program, this new voluntary disclosure program offers a great chance for taxpayers to bring their tax affairs in order and virtually eliminate the possibility of criminal prosecution.

However, what may happen if a taxpayer who should have voluntarily disclosed his offshore income and assets, but fails to do so through 2011 OVDI and the IRS discovers the noncompliance through later examination? This article addresses the common types of penalties that a taxpayer may be subject to in cases where IRS identifies noncompliance with U.S. tax laws before the taxpayer goes through the voluntary disclosure process.

Penalties in General

In general, if the IRS finds out that a taxpayer is not in compliance with U.S. tax laws and fails to voluntarily disclose his offshore assets and foreign bank accounts, the taxpayer may be subject to severe civil and criminal penalties. In additional to accuracy related penalties, the fraud-related penalties, FBAR penalties, and foreign asset reporting penalties (with interest) may be imposed. 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 launched against the 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 under civil examination of the IRS.

Let’s discuss the penalties in 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

Read this article discussing the penalties that may be imposed as a result of a taxpayers failure to file the FinCEN Form 114 formerly Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”).

Other Penalties

Depending on a particular fact pattern, additional penalties may be imposed for failure to file Form 926, 3520, 3520-A, 5471, 5472, and 8865.

Criminal Prosecution

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

Contact Us to Let Us Help You

Sherayzen Law Office can help. We are a tax firm based in Minnesota who has helped taxpayers throughout the United States to disclose offshore assets, foreign bank accounts and unreported foreign income to the IRS, avoiding the nightmare scenarios for our clients.

For many taxpayers, 2011 OVDI is a chance to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. A voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues.

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, call or e-mail us NOW to let us help you with your tax problems. Remember, all calls and e-mails are confidential and attorney-client privileged.