offshore voluntary disclosure lawyers Minneapolis

Voluntary Disclosure News: IRS Offers a Deal to 11 Swiss Banks

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According to Reuters and Sonntags Zeitung, U.S. officials are offering eleven Swiss banks (including Credit Suisse, Julius Baer, Basler Kantonalbank and HSBC Switzerland) a deal that allows them to avoid criminal prosecution in exchange for revealing details of their U.S. offshore business to the U.S. government.

Allegedly, in exchange to dropping the criminal prosecution, the banks would have to pay a hefty fine and agree to assist IRS in tax evasion cases. This means that the Swiss banks will have to deliver all information on their U.S. offshore business (via Bern) to the United States.

Allegedly, as part of an agreement, the banks would hand over to the IRS: the correspondence between a bank and its U.S. clients (including notes from telephone conversations and meetings), internal notes about U.S. client business from all relevant business units, correspondence between the banks and third parties (such as wealth managers) concerning U.S. persons, U.S. funds that were transferred to third parties, and documents about the U.S. business model. The banks would also have to supply the names of the bankers who conducted offshore business, though criminal cases against individuals would not be pursued.

An interesting point in this agreement is that, purportedly, the IRS agreed that the names of the U.S. clients would be blacked out.

While the Swiss banks used to have an iron-clad reputation for protecting their account holders’ identities, it is no longer the case. Since the UBS deal in 2009 (when the Swiss parliament approved a deal forcing USB to reveal details of about 4,450 U.S. citizens), the IRS set an important precedent. Whatever the outcome of the negotiations, it is likely that further damage will be done to the Swiss bank secrecy laws.

Finally, it is important to point out that the information about this deal is still murky and simply based on a source of a Swiss newspaper. The exact details (if the deal is actually agreed to) will likely come out early next year.

Contact Sherayzen Law Office for Voluntary Disclosure of Swiss Bank and Financial Accounts

It is very important for U.S. taxpayers to engage in voluntary disclosure of their unreported foreign bank and financial accounts in order to reduce their civil and criminal penalties. The combination of the deal with Swiss banks and the new Form 8938 makes it extremely dangerous for U.S. persons to continue to delay the disclosure of their foreign assets (where required to do so by law).

If you have foreign bank and financial accounts, whether in Switzerland or elsewhere outside of the United States, contact Sherayzen Law Office NOW to explore your voluntary disclosure options. Our experienced voluntary disclosure firm will help you choose the right disclosure for you, draft and prepare all of the necessary documentation, guide you through the complex regulations of voluntary disclosure, and provide zealous ethical advocacy of your interests while negotiating with the IRS.

Post-OVDI Voluntary Disclosure of Foreign Bank and Financial Accounts

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Since the enrollment into the 2011 Offshore Voluntary Disclosure Initiative (“OVDI”) closed on September 9, 2011, I have been asked repeatedly by new and prospective clients about their post-OVDI options – i.e. is there a voluntary disclosure option for clients who were not able to enroll into the program by the September 9 deadline?

The answer is – Yes! The IRS traditional voluntary disclosure is now an option for clients who wish to come forward with the voluntary disclosure of their foreign assets and foreign income.

Historic Relationship Between Traditional Voluntary Disclosure and Amnesty Initiatives

In order to understand this option, it is important to understand the relationship between the OVDI and the IRS traditional voluntary disclosure. The traditional voluntary disclosure has existed for a very long time, much earlier than the 2011 OVDI or the 2009 Offshore Voluntary Disclosure Program (“OVDP”) or the 2004 Last Chance Compliance Initiative (“LCCI”) or even the very first 2003 Offshore Voluntary Compliance Initiative (“OVCI”).

The four offshore amnesty programs I just mentioned really represent a special type of the voluntary disclosure program that offers advantages to certain individuals who otherwise would be subject to much higher penalties under the traditional voluntary disclosure program. Every time one of the amnesty initiatives. It is important to emphasize, however, that, as the time goes, the advantages for some categories of taxpayers diminish with each subsequent amnesty initiative (while new categories of taxpayers are given additional incentives).

For example, the OVDI offered more penalty categories for the purposes of the offshore penalty calculation (i.e. FBAR penalties) than OVDP. On the other hand, the way OVDI calculates its penalty made the program less advantageous than OVDP for some categories of taxpayers.

Thus, every time there is an amnesty initiative, the traditional voluntary disclosure takes a back seat and limits itself mostly to the domestic voluntary disclosure.

OVDI and Traditional Voluntary Dislcosure

The same story occurred in 2011. Once the OVDI initiative was announced on February 8, 2011, the traditional voluntary disclosure stopped accepting applications involving offshore accounts. Rather, it limited itself to the voluntary disclosures involving U.S.-source income. After a short transitional period of time, all voluntary disclosures involving foreign income were diverted solely to the OVDI program. The updates of June 2, 2011, clarified many such changes, including the opt-out options.

Post-OVDI Voluntary Disclosure

When the OVDI program closed on September 9, 2011, the IRS Traditional Voluntary Disclosure was reinstated to its full size and started to accept the voluntary disclosure applications. However, it is yet to be seen just how much the procedures of the traditional voluntary disclosure have been impacted by the OVDI. At this point, it is clear that the streamlining of applications and the processing structure that existed under the OVDI are impacting the current procedures of the Traditional Voluntary Disclosure program.

On the other hand, substantively, it is also clear that the pre-OVDI FBAR penalty structure has been reinstated with its differentiation between willful and non-willful violations.

Contact Sherayzen Law Office To Conduct Voluntary Disclosure of Foreign Assets and Foreign Income

If you would like to enroll into the IRS Traditional Voluntary Disclosure program or if you would like to consult an attorney about it, contact Sherayzen Law Office by email [email protected] or telephone (952) 500-8159. Our firm’s core tax compliance practice is to help people like you to properly conduct voluntary disclosures.

Our international tax firm is experienced in these matters and will guide you through every stage of this complex process, from initial acceptance into the program (pre-clearance) to strategy development, document submission (amendment of tax returns, FBAR drafting, and other documents), aggressive ethical advocacy, and penalty negotiation with the IRS.

The IRS has professionals working on its side and so should you. Contact Sherayzen Law Office for experienced and professional legal representation!

Form 8865 Penalties

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IRS Form 8865 (“Return of U.S. Persons with Respect to Certain Foreign partnerships”) is used to report information required under IRC section 6038 (reporting with respect to controlled foreign partnerships), IRC section 6038B (reporting of transfers to foreign partnerships), and IRC section 6046A (reporting of acquisitions, dispositions, and changes in foreign partnership interests) for those taxpayers who are required to file.

In a previous article, I broadly described the four categories of filers who are required to file the form. This article will examine the penalties that may be imposed for failure to comply with the IRS requirements.

Penalties

A. Failure to Timely Submit all Required Information Concerning Category 1 and 2 Filers

Form 8865 must be filed along with an income tax (or partnership or exempt organization) return by the due date, including extensions, of the return. For persons who must file Form 8865, but who are not required to file an income tax (or other applicable) return, the form must be submitted to the IRS at the time and location that such a return would have been filed, if the person had been required to do so.

A $10,000 penalty may be imposed (for each tax year) of each foreign partnership for a failure to furnish all of the necessary information by the required time. Further, if the information is not filed within 90 days after the IRS has mailed a notice of the failure to a U.S. person, another $10,000 penalty per foreign partnership may be charged for each 30-day period (or fraction thereof), during which the failure continues after that 90-day period has expired. This additional penalty is limited to a maximum of $50,000 for each failure.

Additionally, any person who fails to furnish all of the necessary information within the required time period will be subject to a reduction of 10% of the foreign taxes credit under IRC sections 901, 902, and 960. Furthermore, an additional 5% reduction will result for each 3-month period (or fraction thereof), after the 90 day time period, in which the IRS mailed the notice of the failure, has expired. IRC section 6038(c)(2) limits the amount of this penalty.

The above-mentioned penalties have a much broader application. They may also apply to any person who does not meet the “constructive owners” exception (contact an international tax attorney for details with respect to this issue) but who files Form 8865 stating that the exception is met. Likewise, where another person files under the “multiple Category 1 filers exception” (see below) for the taxpayer who is required to file Form 8865 and the filer fails to accurately complete the Form and applicable schedules, the same drastic penalties may apply to the taxpayer (even though the actual filer, and not the taxpayer, is at fault).

Generally, the “multiple Category 1 filers exception” provides that, if during the tax year of a partnership more than one U.S. person qualifies as a Category 1 filer, only one of the Category 1 partners may be required to file Form 8865

Finally, the criminal penalties under IRC sections 7203, 7206, and 7207, may also be applied to the above-mentioned groups for failure to file or for filing false or fraudulent information. You will need to consult an international tax attorney to determine whether criminal penalties may potentially apply in your situation.

B. Failure to File Required Information Concerning Category 3 Filers

The penalties for the Category 3 filer (see this article for definition) may be truly draconian. Where a Category 3 filer fails to properly report a contribution to a foreign partnership that is required to be reported under section 6038B and applicable regulations, the filer may be subject to a penalty equal to 10% of the fair market value of the property at the time of the contribution. In addition to the penalty, the person must treat the contributed property as having been sold at the fair market value at the time of transfer, and recognize gain on the disposition for tax purposes. Unless the failure resulted because of intentional disregard, this penalty may be limited to a $100,000.

C. Failure to File Required Information Concerning Category 4 Filers

Any person who fails to accurately report all of the required information under section 6046A (reporting of acquisitions, dispositions, and changes in foreign partnership interests) may be subject to a $10,000 penalty.

If the failure to report continues for more than 90 days after the IRS mails a notice of the failure, an additional $10,000 penalty will apply for each 30-day period (or fraction thereof) that the person fails to correct the failure, after the 90-day period has expired. This additional penalty will be limited to $50,000.

D. Failure to Report Treaty-Based Return Positions

Persons who are claiming a treaty-based position that an existing treaty between the US and another nation either overrides or modifies any IRC provision, or reduces, or possibly reduces, a tax incurred at any time, must file Form 8833 (“Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)”). Failure to file this form for a treaty-based position may result in a $1,000 penalty Under IRC section 6712. For C corporations, the penalty is $10,000.

Correcting Form 8865

Because of the severity of the penalties that may apply for an erroneous or incomplete Form 8865, individuals should be aware of the procedures available for correcting the form, if necessary. If an incorrect or incomplete form has been filed, a corrected form should be filed with an amended tax return (stating “corrected” at the top of the form), and a sheet attached specifying and explaining the corrections.

Contact Sherayzen Law Office For Legal Advice In Dealing With Form 8865 Penalties

Form 8865 penalties can be extremely large, and, in certain circumstances, disastrous to your personal and financial life. Therefore, if you believe that you are potentially facing a Form 8865 penalty, contact Sherayzen Law Office immediately for a legal advice. Our experienced international tax compliance firm will vigorously and professionally defend your interests, represent you in all of your IRS dealings, and strive to achieve the most favorable outcome while dealing with this highly complex and stressful situation in an expeditious manner.

OVDI: IRS Shows Continued Progress on International Tax Non-Compliance

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The Internal Revenue Service has achieved significant success in combating international tax non-compliance. The total number of voluntary disclosures up to 30,000 since 2009. In all, 12,000 new applications came in from the 2011 offshore program that closed last week.

The IRS also announced today it has collected $2.2 billion so far from people who participated in the 2009 program, reflecting closures of about 80 percent of the cases from the initial offshore program. On top of that, the IRS has collected an additional $500 million in taxes and interest as down payments for the 2011 program — a figure that will increase because it doesn’t yet include penalties.

IRS Increases Pressure on U.S. Taxpayers

“By any measure, we are in the middle of an unprecedented period for our global international tax enforcement efforts,” said IRS Commissioner Doug Shulman. “We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion.”

Global tax enforcement is a top priority at the IRS, and Shulman noted progress on multiple fronts, including ground-breaking international tax agreements and increased cooperation with other governments. In addition, the IRS and Justice Department have increased efforts involving criminal investigation of international tax evasion.

The combination of efforts helped support the 2011 Offshore Voluntary Disclosure Initiative (OVDI), which ended on September 9. The 2011 effort followed the strong response to the 2009 Offshore Voluntary Disclosure Program (OVDP) that ended on Oct. 15, 2009.

Number of Disclosures

The 2009 program led to about 15,000 voluntary disclosures and another 3,000 applicants who came in after the deadline, but were allowed to participate in the 2011 initiative. Beyond that, the 2011 program has generated an additional 12,000 voluntary disclosures, with some additional applications still being counted. All together from these efforts, taxpayers came forward and made 30,000 voluntary disclosures.

“My goal all along was to get people back into the U.S. tax system,” Shulman said. “Not only are we bringing people back into the U.S. tax system, we are bringing revenue into the U.S. Treasury and turning the tide against offshore tax evasion.”

In new figures announced today from the 2009 offshore program, the IRS has $2.2 billion in hand from taxes, interest and penalties representing about 80 percent of the 2009 cases that have closed. These cases come from every corner of the world, with bank accounts covering 140 countries.

The IRS is starting to work through the 2011 applications. The $500 million in payments so far from the 2011 program brings the total collected through the offshore programs to $2.7 billion.

Criminal prosecutions

People hiding assets offshore have received jail sentences running for months or years, and they have been ordered to pay hundreds of thousands and even millions of dollars. UBS. UBS AG, Switzerland’s largest bank, agreed in 2009 to pay $780 million in fines, penalties, interest and restitution as part of a deferred prosecution agreement with the U.S. government. The two disclosure programs provided the IRS with a wealth of information on various banks and advisors assisting people with offshore tax evasion, and the IRS will use this information to continue its international enforcement efforts.

Contact Sherayzen Law Office to Resolve Your International Tax Issues

If you have not filed your FBARs and/or have unreported foreign-source income, please contact Sherayzen Law Office NOW! Our experienced international tax firm will help you resolve your international tax compliance issue and guide you through the complex process of the IRS voluntary disclosure.

Non-Resident Indians Face High Exposure to the FBAR Reporting Requirements

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Non-Resident Indian (NRI) is an Indian citizen who has migrated to another country, a person of Indian origin who is born outside India, or a person of Indian origin who resides permanently outside India. A large number of the NRIs left India as a result of a job offer, for example as a software engineer or an IT consultant.

In spite of leaving their country, most NRIs maintain close ties with their homeland and their families. There is a trend among NRIs to purchase rural and semi-rural non-income producing land in India as a retirement investment. A minority of the NRIs also rent out their homes and apartments.

As a result of all of this personal and economic activity, the NRIs have a constant source of foreign income, which is usually deposited either in an NRO bank account. In order to purchase real property in India or help their families, NRIs often open and maintain NRE accounts as well.

Unfortunately, most of the NRIs residing in the United States are completely unaware that these NRO, NRE, and other bank and financial accounts must be reported on FBAR (the Report on Foreign Bank and Financial Accounts).

This problem is further exacerbated by the fact that a lot of NRIs think that paying taxes in India means that you do not need to report their Indian income in the United States. As a result of this misunderstanding, a lot of NRIs end up in a situation where they are in violation of both FBAR and income tax requirements.

This is an extremely dangerous combination which may result in the imposition of substantial FBAR penalties as well as additional income tax penalties. In the worse case scenarios, where the IRS finds that the violation is willful, a criminal prosecution may be initiated.

Contact Sherayzen Law Office NOW For FBAR Help

If you an NRI who has not disclosed his bank and financial accounts in India, contact Sherayzen Law Office as soon as possible. Eugene Sherayzen is an experienced voluntary disclosure attorney who will guide you through the complex and dangerous maze of U.S. tax compliance laws and regulations, and help you find the right solution to your FBAR problems.