international tax lawyers

FBAR Reporting of Foreign Gold and Silver Storage Accounts

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There is a great deal of confusion about the reporting of foreign gold and silver storage accounts on the Report of Foreign Bank and Financial Accounts (FBAR). In this article, I would like to set forth the general legal framework for the analysis of the reporting requirements for the foreign gold and silver storage accounts. However, it should be remembered that this article is for educational purposes only and it does not provide any legal advice; whether your particular foreign gold and silver accounts should be reported on the FBAR is a legal question that should be analyzed by an international tax attorney within your particular fact setting.

FBAR Background

FBAR’s official name is FinCEN Form 114 (formerly form TD F 90-22.1). Generally, the FBAR is used by US persons to report foreign bank and financial accounts whenever the aggregate balance on these accounts exceeds the threshold of $10,000. The FBAR applies to accounts which are directly, indirectly and constructively owned; it further applies to situations where a US person has signatory or other authority over a foreign account.

The above description contains numerous terms of art that have very specific meaning (even with respect to such common terms as “US person” and “accounts”). I only provide a very general definition of the FBAR here, but there is plenty of FBAR articles on sherayzenlaw.com that you can read to learn more about this requirement.

General Rule for Reporting of Foreign Gold and Silver Storage Accounts

In general, if you have a foreign gold and silver storage accounts, they are reportable on the FBAR as long as the threshold requirement is satisfied. However, as almost everything in international tax law, you have to look closely at the definition of terms. In this case, the critical issue is what situations fall within the definition of foreign gold and silver storage accounts.

What are Foreign Gold and Silver Storage Accounts?

It is important to understand that certain facts and details may play a great role in determining whether one has foreign gold and silver storage accounts – this is why it is so important to have an international tax attorney review the particular facts of your case.

Nevertheless, there are certain general legal concepts that provide helpful guidance to international tax attorneys in their FBAR analysis. The most important FBAR factors for determining whether a particular arrangement is defined as foreign gold and silver storage accounts are two interrelated concepts of “custodial relationship” and “control”.

Generally, where another person or entity has access and/or control of assets or funds on your behalf, the IRS is very likely to find that a custodial relationship exists and all such arrangements would be reportable on the FBAR as foreign gold and silver storage accounts. For example, if one buys gold and silver through BullionVault or Goldmoney (whether allocated or non-allocated), one creates foreign gold and silver storage accounts because BullionVault or Goldmoney would handle the transaction on your behalf and store the precious metals on your behalf (and, as mentioned above, even allocate your holdings to a particular gold or silver bar).

A word of caution: the IRS tends to interpret the definitions of “account” and “custodial relationship” very broadly and one must not indulge oneself with false thoughts of security because one thinks that he was able to circumvent a particular fact setting. Again, the existence of foreign gold and silver storage accounts is a legal question that should be reviewed by an experienced international tax lawyer.

Foreign Gold and Silver Storage Accounts: What about a Safe Deposit Box?

There is a situation that comes up often in my practice (particularly for clients with Australian, Hong Kong and Swiss accounts) with respect to FBAR reporting of precious metals – putting gold, silver and other precious metals in a foreign safe deposit box. There is a dangerous myth that safe deposit boxes are never reportable – this is incorrect.

In general, it is true that precious metals held in a safe deposit box are not reportable, but if and only if no account relationship exists. If there is an account relationship with respect to a safe deposit box, then it would be considered a reportable foreign gold and silver storage account for the FBAR purposes.

What does this mean? Let’s go back to the definition of a custodial relationship cited above – an account relationship exists whenever another person or entity has control of funds or assets on your behalf. If one applies this definition to a safe deposit box, then it is likely that the IRS will interpret any situation where an institution or person has access to a safe deposit box as an existence of an account. Moreover, the IRS is likely to find that foreign gold and silver storage accounts exist where an owner (direct or indirect) of the safe deposit box can instruct the institution to sell the gold from the safe deposit box.

Other Reporting Requirements May Apply to Foreign Gold and Silver Storage Accounts

It is important to mention that FBAR is just one of potential reporting requirements under US tax laws. Other reporting requirements (such as Form 8938, 8621, 5471, 8865 and so on) may apply depending on the nature of the foreign gold and silver storage accounts, form of ownership, whether a foreign entity is involved, and numerous other facts. You will need to contact an experienced international tax lawyer to determine your international tax reporting requirements under US tax laws.

Contact Sherayzen Law Office for Professional Help with Reporting of Foreign Gold and Silver Accounts

If you have unreported foreign gold and silver storage accounts, contact Sherayzen Law Office for professional help. Owner Eugene Sherayzen is an experienced international tax attorney who will thoroughly analyze your case, determine the extent of your current reporting requirements and potential non-compliance liability, analyze your voluntary disclosure options, and implement the preferred legal option (including preparation of all legal documents and tax forms).

Contact Us to Schedule Your Confidential Consultation Now!

Illegal Use of Offshore Accounts in the Caribbeans: Advisor Sentenced

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In an earlier article, we referred to a case where a investment advisors used offshore accounts in the Caribbeans to launder and conceal funds. On September 5, 2014, the IRS ad the DOJ announced one of these advisors, Mr. Joshua Vandyk, was sentenced to serve 30 months in prison.

Mr. Vandyk, a U.S. citizen, and Mr. Eric St-Cyr and Mr. Patrick Poulin, Canadian citizens, were indicted by a grand jury in the U.S. District Court for the Eastern District of Virginia on March 6, and the indictment was unsealed March 12 after the defendants were arrested in Miami. Mr. Vandyk, 34, pleaded guilty on June 12, Mr. St-Cyr, 50, pleaded guilty on June 27, and Mr. Poulin, 41, pleaded guilty on July 11. St-Cyr and Poulin are scheduled to be sentenced on October 3, 2014.

According to the plea agreements and statements of facts, All three advisors conspired to conceal and disguise the nature, location, source, ownership and control of $2 million (believed to be the proceeds of bank fraud) through the use of the Offshore Accounts in the Caribbeans. The Offshore Accounts in the Caribbeans are often used not only to conceal illegal funds, but also perfectly legal earnings of U.S. persons.

In addition to the use of the Offshore Accounts in the Caribbeans, the advisors assisted undercover law enforcement agents posing as U.S. clients in laundering purported criminal proceeds through an offshore structure designed to conceal the true identity of the proceeds’ owners. Moreover, Mr. Vandyk helped invest the laundered funds on the clients’ behalf and represented that the funds in the Offshore Accounts in the Caribbeans would not be reported to the U.S. government.

According to court documents, Mr. Poulin established an offshore corporation called Zero Exposure Inc. for the undercover agents and served as a nominal board member in lieu of the clients. Mr. Poulin then transferred approximately $200,000 that the defendants believed to be the proceeds of bank fraud from the offshore corporation to the Cayman Islands, where Mr. Vandyk and Mr. St-Cyr invested those funds outside of the United States in the name of the offshore corporation. The investment firm represented that it would neither disclose the investments or any investment gains to the U.S. government, nor would it provide monthly statements or other investment statements with respect to the Offshore Accounts in the Caribbeans to the clients. Clients were able to monitor their investments in the Offshore Accounts in the Caribbeans online through the use of anonymous, numeric passcodes. Upon request from the U.S. client, Mr. Vandyk and Mr. St-Cyr liquidated investments and transfered money from the Offshore Accounts in the Caribbeans, through Mr. Poulin, back to the United States.

This case is just one more example of the increased IRS international tax enforcement with respect to the Offshore Accounts in the Caribbeans.

History and Success of the Main Voluntary Disclosure Programs

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In order to bring back into the system the non-compliant taxpayers with undisclosed foreign assets, the IRS created various offshore voluntary disclosure programs. The voluntary disclosure programs have been part of a wider effort to stop offshore tax evasion, which includes enhanced enforcement, criminal prosecutions and implementation of third-party reporting via the Foreign Account Tax Compliance Act (FATCA). Recently, the IRS shared the statistics regarding the success of its three latest and most voluntary disclosure programs: 2009 OVDP, 2011 OVDI and 2012 OVDP (recently updated to become the 2014 OVDP).

Results for All Three Programs

The outcome of the three voluntary disclosure programs is indeed impressive. Overall, the three voluntary programs have resulted in more than 45,000 voluntary disclosures from individuals who have paid about $6.5 billion in back taxes, interest and penalties.

Let’s take a closer look at each program.

2009 OVDP

This was the first of the “troika” of the latest voluntary disclosure programs. The IRS announced the 2009 Offshore Voluntary Disclosure Program (OVDP) in March 2009. It offered taxpayers an opportunity to avoid criminal prosecution and a settlement of a variety of civil and criminal penalties in the form of single miscellaneous offshore penalty. It was based on existing voluntary disclosure practices used by IRS Criminal Investigation.

Generally, the miscellaneous offshore penalty for the 2009 program was 20 percent of the highest aggregate value of the unreported offshore accounts from 2003 to 2008. Participants were also required to file amended or late returns and FBARs for those years.

In the 2009 OVDP the IRS received 15,000 disclosures prior to the October 15, 2009 closing date. It resulted in the collection of $3.4 billion in back taxes, interest and penalties. It also led to another 3,000 disclosures after the closing date.

No doubt that the success of the 2009 OVDP was made possible by the IRS victory in the UBS case in August of 2008 and the action it started to take to follow-up on this victory. The UBS case became the turning point in the offshore compliance for U.S. taxpayers because the victory was achieved over one of the largest banks in the world in the country which was considered to be the most formidable fortress of bank secrecy for centuries.

2011 OVDI

While the 2009 program was the first of the post-UBS voluntary disclosure programs, the 2011 Offshore Voluntary Disclosure Initiative (OVDI) was the program that established the offshore voluntary disclosure programs as one of the main pillars of U.S. voluntary tax compliance. The 2011 OVDI was announced in February of 2011 and lasted until September 9 of that year (originally, it was supposed to close on August 31, 2011, but the IRS extended the deadline to September 9).

Generally, participants of this program paid a 25% miscellaneous offshore penalty on the highest aggregate value of unreported offshore accounts from 2003 to 2010. In addition, some participants were eligible for special 5% or 12.5% penalties, but there were very strict requirements to qualify for this treatment.

The 2011 OVDI was extremely popular. It drew 15,000 disclosures and resulted in the collection of $1.6 billion in back taxes, interest and penalties for the 70 percent of cases that were closed that year.

2012 OVDP

After analyzing the results from the two prior voluntary disclosure programs and reflecting on the best way to induce tax compliance (while intensifying international tax enforcement and looking forward to the implementation of FATCA), the IRS created a new 2012 Offshore Voluntary Disclosure Program (2012 OVDP) in January of 2012 and 2014 OVDP now closed.

In constructing the 2012 OVDP rules, the IRS drew on its experience from the experience from the prior voluntary disclosure programs, revised the terms of the 2011 OVDI program and made the 2012 OVDP permanent until further notice. Under the 2012 OVDP, participants paid a penalty of 27.5 percent of the highest aggregate balance or value of offshore assets during the prior eight years. The 5% or 12.5% penalties remained in effect for certain taxpayers. This 2012 program has drawn 12,000 disclosures since its inception.

2012 Streamlined Option

In June of 2012, the IRS expanded its voluntary disclosure programs beyond 2012 OVDP and added an option to the existing disclosure program that enabled some U.S. citizens and others residing abroad to catch up on their filing requirements and avoid large penalties if they owed little or no back taxes. This option took effect in September of that year.

2014 Changes to Offshore Voluntary Disclosure Programs

In June of 2014, the IRS announced major changes in the 2012 offshore account compliance programs. As a result of these changes, the taxpayers now currently have to analyze up to five different voluntary disclosure paths. The more prominent changes to the voluntary disclosure programs include: new 2014 OVDP with the double-penalty structure of 27.5% and 50%, major enhancement of the Streamlined Foreign Offshore Procedures, introduction of the brand-new Streamlined Domestic Offshore Procedures with its new 5% penalty structure, slightly modified Delinquent FBAR Submission rules, and slightly modified Delinquent Information Return Submission rules (which partially incorporates now the statutory Reasonable Cause exception).

The changes are anticipated to provide thousands of people a new avenue to come back into compliance with their tax obligations.

Contact Sherayzen Law Office for Professional Advice Regarding Your Offshore Voluntary Disclosure Options

If you have undisclosed foreign accounts and other foreign assets, you are likely to face very steep penalties if the IRS discovers your non-compliance. This is why it is prudent to consider your voluntary disclosure options as soon as possible.

Sherayzen Law Office is a firm that specializes in international tax compliance and offshore voluntary disclosures. Our experienced international tax law firm can offer professional advice with respect to your voluntary disclosure options and conduct the entire offshore voluntary disclosure for you. Contact Us to Schedule Your Confidential Consultation Now!

Underpayment and Overpayment Interest Rates for the Third Quarter of 2014

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Underpayment and Overpayment Interest Rates are important to all taxpayers who are either due a refund or owe taxes to the IRS, because the interest on the refund or the amount due will be calculated based on these Interest Rates. This essay reminds U.S. taxpayers that the IRS announced that the interest rates will remain the same for the calendar quarter beginning July 1, 2014. The rates will be:

three (3) percent for overpayments [two (2) percent in the case of a corporation];
three (3) percent for underpayments;
five (5) percent for large corporate underpayments; and
one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined 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.

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.

Interest factors for daily compound interest for annual rates of 0.5 percent are published in Appendix A of Revenue Ruling 2011-32. Interest factors for daily compound interest for annual rates of 2 percent, 3 percent and 5 percent are published in Tables 7, 9, 11, and 15 of Rev. Proc. 95-17, 1995-1 C.B. 561, 563, 565, and 569.

Filings Required Under the Streamlined Foreign Offshore Procedures

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In a previous article, I discussed the eligibility requirements and the general process of the Streamlined Foreign Offshore Procedures. In this article, I would like to explore further the specific filing requirements that should be met under the Streamlined Foreign Offshore Procedures. As a side note, while this article contains an overview of filing instructions, it greatly simplifies the matter and glosses over the potential complexities that may arise in an individual case. This is why only an international tax attorney should be handling the preparation and submission of documents in a voluntary disclosure context – I strongly discourage any “self-representation” in the Streamlined Foreign Offshore Procedures due to the complexity of the issues involved.

It is useful to organized the filing requirements based on relevant categories of documents. There are five categories of documents that may need to be filed under the Streamlined Foreign Offshore Procedures: tax returns, tax payment, FBARs, Certification, and late Deferral and ITIN Requests.

Streamlined Foreign Offshore Procedures: Filing Requirement Related to U.S. Tax Returns

The IRS issued precise instructions regarding submitting U.S. tax returns under the Streamlined Foreign Offshore Procedures. There are two possible scenarios with respect to submitted U.S. tax returns under Streamlined Foreign Offshore Procedures.

First, assuming that the taxpayer never filed a tax return, for each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the taxpayer must submit a complete and accurate delinquent tax return using Form 1040, U.S. Individual Income Tax Return, together with the required information returns (e.g., Forms 3520, 5471, and 8938) even if these information returns would normally be filed separately from the Form 1040 had the taxpayer filed on time.

However, if a U.S. tax return has been filed previously, then the taxpayer must submit a complete and accurate amended tax return using Form 1040X, Amended U.S. Individual Income Tax Return, together with the required information returns (e.g., Forms 3520, 5471, and 8938) even if these information returns would normally be filed separately from the Form 1040 had the taxpayer filed a complete and accurate original return.

Irrespective of whether this is a delinquent tax return or an amended tax return, the taxpayer should include at the top of the first page of each delinquent or amended tax return and at the top of each information return “Streamlined Foreign Offshore” written in red to indicate that the returns are being submitted under these procedures. The IRS warns that this is critical to ensure that the taxpayer’s returns are processed through Streamlined Foreign Offshore Procedures.

Streamlined Foreign Offshore Procedures: Payment of Tax Due

Together with the U.S. tax returns, the taxpayer should submit the payment of all tax due as reflected on the tax returns and all applicable statutory interest with respect to each of the late payment amounts. The taxpayer’s taxpayer identification number must be included on your check. As mentioned previously, under the Streamlined Foreign Offshore Procedures, the taxpayer is not required to pay any failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties.

Streamlined Foreign Offshore Procedures: FBARs

Unlike the 2014 OVDP, the Streamlined Foreign Offshore Procedures follow the general FBAR statute of limitations and require the taxpayer to file delinquent FBARs for each of the most recent 6 years for which the FBAR due date has passed. The FBARs should be filed according to the FBAR instructions and they should include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures.

All FBARs must be e-filed at FinCen. On the cover page of the electronic form, select “Other” as the reason for filing late. An explanation box will appear. In the explanation box, enter “Streamlined Filing Compliance Procedures.” While not required, it may be beneficial to include a more expanded statement to briefly state the circumstances – it is the job of an international tax attorney to critically look at his client’s case and see if this is the right strategy.

Streamlined Foreign Offshore Procedures: Certification of Non-Willfulness

This is the most critical part of the voluntary disclosure package under the Streamlined Foreign Offshore Procedures. The taxpayer must complete and sign a statement on the Certification by U.S. Person Residing Outside of the U.S. certifying (1) that he is eligible for the Streamlined Foreign Offshore Procedures; (2) that all required FBARs have now been filed; and (3) that the failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct.

The taxpayer must submit the original signed statement to the IRS. Furthermore, he must also attach copies of the statement to each tax return and information return being submitted through Streamlined Foreign Offshore Procedures.

The IRS warns that failure to submit this statement, or submission of an incomplete or otherwise deficient statement, will result in returns being processed in the normal course without the benefit of the favorable terms of the Streamlined Foreign Offshore Procedures.

At this point, the IRS does not require the attachment of copies of the Certification statement to FBARs, but this may change in the future (it appears that the FBARs may acquire at some future time the capability of submitting an attached pdf statement).

Streamlined Foreign Offshore Procedures: Late Deferral and ITIN Requests

Where relevant, the taxpayer may also utilize the Streamlined Foreign Offshore Procedures to make retroactive elections that otherwise would be late as well as to make ITIN requests.

If the taxpayer is not eligible to have a Social Security Number and does not already have an ITIN, he should submit an application for an ITIN along with the required tax returns, information returns, and other documents filed under these streamlined procedures.

In situations where the taxpayer seeks relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by an applicable treaty, he should submit the following items as part of his disclosure package under the Streamlined Foreign Offshore Procedures:

a). A statement requesting an extension of time to make an election to defer income tax and identifying the applicable treaty provision;

b). A dated statement signed by you under penalties of perjury describing: (i) the events that led to the failure to make the election; (ii) the events that led to the discovery of the failure, and (iii)
if the taxpayer relied on a professional advisor, the nature of the advisor’s engagement and responsibilities; and

c). For relevant Canadian plans, a Form 8891 for each tax year and each plan and a description of the type of plan covered by the submission.

Streamlined Foreign Offshore Procedures: Mailing Address as of July 7, 2014

Once the above-described documents are gathered into one package (together with the payments), this package should be sent in paper format to the following address:

Internal Revenue Service
3651 South I-H 35
Stop 6063 AUSC
Attn: Streamlined Foreign Offshore
Austin, TX 78741

This address may only be used for returns filed under these procedures and may change over time; so, an international tax lawyer should verify any changes to the address prior to submission of any documents under the Streamlined Foreign Offshore Procedures.

Contact Sherayzen Law Office for Help with Disclosure of Your Foreign Accounts and Other Assets

If you own foreign financial accounts and other assets, you should contact Mr. Eugene Sherayzen, an experienced tax attorney of Sherayzen Law Office for legal help. Our experienced international tax law firm specializes in offshore voluntary disclosures and we can help you.

Contact Us to Schedule Your Confidential Consultation!