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Treasury and the IRS Issue Proposed Regulations for FATCA Implementation

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On February 8, 2012, the U.S. Treasury Department and the Internal Revenue Service issued proposed regulations for the next major phase of implementing the Foreign Account Tax Compliance Act (FATCA).

FATCA and FFI Reporting under Proposed Regulations

FATCA was enacted by the U.S. Congress in 2010 as part the Hiring Incentives to Restore Employment (HIRE) Act. This law specifically targets non-compliance by U.S. taxpayers using foreign accounts.

FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

The proposed regulations lay out a step-by-step process for U.S. account identification, information reporting, and withholding requirements for FFIs, other foreign entities, and U.S. withholding agents.

The proposed regulations implement FATCA’s obligations in stages to minimize burdens and costs consistent with achieving the Congress’ compliance objectives. The rules and implementation schedule are also adjusted to allow time for resolving local law limitations to which some FFIs may be subject.

In order to avoid being withheld upon under FATCA, a participating FFI will have to enter into an agreement with the IRS to:

a) Identify U.S. accounts,
b) Report certain information to the IRS regarding U.S. accounts,
c) Verify its compliance with its obligations pursuant to the agreement, and
d) Ensure that a 30-percent tax on certain payments of U.S. source income is withheld when paid to non-participating FFIs and account holders who are unwilling to provide the required information.

Registration will take place through an online system which will become available by January 1, 2013. FFIs that do not register and enter into an agreement with the IRS will be subject to withholding on certain types of payments relating to U.S. investments.

Effect of FATCA Regulations on Non-Disclosure of Foreign Accounts

Once implemented, the regulations will mark a major breakthrough in IRS efforts to identify U.S. taxpayer non-compliance through offshore holdings. In essence, the FFIs reporting will supply the IRS with continuous and accurate information that will allow them to identify failure to by the US taxpayers to disclose foreign financial accounts.

Armed with this information, one can expect the IRS to acquire new tremendous enforcement tools throughout the world. It is very likely that the IRS will be able to substantially increase its investigations of non-compliant U.S. taxpayers as well as successfully prosecute them.

Immediate Effect of FATCA: Urgency in Voluntary Disclosures

Thus, the ultimate effect of FATCA will be felt on the number of voluntary disclosures. At this point, a large number of currently non-compliant U.S. taxpayers are in high danger of being discovered and prosecuted by the IRS within relatively near future.

Since voluntary disclosure is not generally available in case of IRS investigation and/or prosecution, it appears that the need for these taxpayers to engage in voluntary disclosure is becoming increasingly urgent. Combined with other creation of FATCA – Form 8938 – I expect to see a large number of voluntary disclosures in 2012.

Contact Sherayzen Law Office for Help With Offshore Voluntary Disclosure

If you currently have undisclosed foreign bank and financial accounts or unreported foreign income, contact Sherayzen Law Office. Our experienced voluntary disclosure firm will help you identify the extent of your tax reporting requirements, analyze your potential tax liabilities, describe available voluntary disclosure options, and guide you throughout your voluntary disclosure, including completing the required documentation, setting forth your legal case, and rigorous IRS representation.

IRS Declares New 2012 Offshore Voluntary Disclosure Program

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On January 9, 2012, the Internal Revenue Service announced that it opens another offshore voluntary disclosure program – 2012 Offshore Voluntary Disclosure Program or 2012 OVDP – to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.

The IRS opened the 2012 OVDP following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced. Program was closed in 2018.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

The 2012 OVDP is similar to the 2011 OVDI program in many ways, but with a few key differences. First, unlike the last year, there is no set deadline for people to apply. Second, while the 2012 OVDP penalty structure is mostly similar to the OVDI program, the taxpayers in the highest penalty category will suffer from a hike in the penalty rate – the new penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011. Third, participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. Fourth, as under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

The important details of the 2012 OVDP are still going to be announced by the IRS later.  It is important to emphasize, however, that the terms of the 2012 OVDP could change at any time going forward. For example, the IRS may increase penalties in the 2012 OVDP for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.

The IRS also stated that it is currently developing procedures by which dual citizen taxpayers, who may be delinquent in filing but owe no U.S. tax, may come into compliance with U.S. tax law.

“As we’ve said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”

This offshore effort comes as Shulman also announced today the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program. That number will grow as the IRS processes the 2011 cases.

In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures. Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new 2012 OVDP program.

Contact Sherayzen Law Office for Legal Help With Your Voluntary Disclosure

If you are currently not in compliance with U.S. tax laws, contact Sherayzen Law Office for legal help. Our experienced international tax firm will explore all of the available options, advise you on the best course of action, draft all of the required documentation, provide IRS representation, and conduct the necessary disclosure to bring your affairs tax affairs into full compliance with U.S. tax system.

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!