international tax lawyers

Streamlined Domestic Offshore Procedures: Eligibility Requirements

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One of the most significant changes introduced by the 2014 update to the voluntary disclosure structure is the unprecedented introduction of the streamlined voluntary disclosure option to the U.S. taxpayers who reside in the United States – the so called, Streamlined Domestic Offshore Procedures. The introduction of the Streamlined Domestic Offshore Procedures means that the IRS finally recognized that there is a very large number of U.S. taxpayers who were non-willful with respect to their inability to comply with numerous obscure complex requirements of U.S. tax laws. They now have a new official option to deal with their situation.

Since the new option of the participation in the Streamlined Domestic Offshore Procedures is somewhat important to the voluntary disclosure, I would like to focus this short article on the general eligibility requirements for the Streamlined Domestic Offshore Procedures.

There are three eligibility requirements that must be met in order be able to utilize the Streamlined Domestic Offshore Procedures. First, the taxpayer must be a U.S. citizen, U.S. lawful permanent resident, or he must have met the substantial presence test.

The substantial presence test is outlined in 26 U.S.C. 7701(b)(3). Under 26 U.S.C. §7701(b)(3), an individual meets the substantial presence test if the sum of the number of days on which such individual was present in the United States during the current year and the 2 preceding calendar years (when multiplied by the applicable multiplier) equals or exceeds 183 days.

The second requirement is critical to the participation in the Streamlined Domestic Offshore Procedures – taxpayer’s violations of the applicable U.S. tax requirements must be non-willful. The failures to report the income from a foreign financial asset, pay tax as required by U.S. law, file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, and file other international information returns (such as Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) should have been non-willful. If the failure to file the FBAR and any other information returns was willful, the participation in the Streamlined Domestic Offshore Procedures is not likely to be possible.

Finally, the third eligibility requirement for the participation in the Streamlined Domestic Offshore Procedure is that the participating taxpayer is not subject to an IRS civil examination or an IRS criminal investigation, irrespective of the examination is related to undisclosed foreign financial assets or involves any of the years subject to the voluntary disclosure. In either case, the taxpayer will not be eligible to use the Streamlined Domestic Offshore Procedure.

Contact Sherayzen Law Office for Legal Help With Your Offshore Voluntary Disclosure

If you have undisclosed foreign accounts or any other offshore assets, contact Sherayzen Law Office for professional legal help. Our experienced international tax law firm will thoroughly analyze your case, estimate your current FBAR penalty exposure, and determine your eligibility for the available voluntary disclosure options, including the 2014 OVDP (now closed) Streamlined procedures and the Modified Voluntary Disclosure.

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Non-Residency Requirement of the Streamlined Foreign Offshore Procedures

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One of the key issues facing U.S. taxpayers who wish to use the Streamlined Foreign Offshore Procedures is meeting the non-residency requirement. If the non-residency requirement is not met (and assuming the regular delinquent FBAR submission procedure is not applicable), the U.S. taxpayer faces the less pleasant choice of either following the Streamlined Domestic Offshore Procedures with a 5% penalty, entering the 2014 Offshore Voluntary Disclosure Program with its 27.5% penalty or pursuing an altogether distinct choice of the statutory reasonable cause exception (also known as Modified Voluntary Disclosure or Noisy Disclosure).

In this article, I will focus on outlining the non-residency requirement under the Streamlined Foreign Offshore Procedures. This article is for the educational purposes only; my strong recommendation is to retain an international tax attorney to determine whether your situation meets this non-residency requirement.

General Framework of the Non-Residency Requirement

In order to make sure that you are applying the correct legal test, you need to understand the dual framework of the non-residency requirement. The IRS draws a sharp distinction between two groups of U.S. taxpayers. The first group consists of U.S. citizens, U.S. lawful permanent residents (i.e. the green card holders), and estates of U.S. persons or lawful permanent residents. The second group consists of the U.S. taxpayers who are not U.S. citizens, U.S. lawful permanent residents, or estates of U.S. persons or lawful permanent residents. A large swath of people (primarily foreign workers and investors) fall under this category. For example, people who came here on the H-1, L and E visas as well as people who are in the process of obtaining their U.S. permanent residency.

Distinct non-residency requirement will be applicable to each group of taxpayers.

Non-Residency Requirement for U.S. citizens, Green Card Holders and Their Estates

In order to meet the non-residency requirement under the Streamlined Foreign Offshore Procedures, individual U.S. citizens or lawful permanent residents, or estates of U.S. citizens or lawful permanent residents:

1. In any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed,

2. Should not have had a U.S. abode, and

3. Should have been physically outside the United States for at least 330 full days.

Neither temporary presence of the individual in the United States nor maintenance of a dwelling in the United States by an individual necessarily mean that the individual’s abode is in the United States. The IRS made it clear that IRC section 911 and its regulations apply for the purposes of determining whether the non-residency requirement was met for the purposes of the Streamlined Foreign Offshore Procedures.

Non-Residency Requirement for Individuals Who are Not U.S. citizens or Lawful Permanent Residents

The key issue for the second group of individuals is understanding 26 U.S.C. 7701(b)(3). In order to meet the non-residency requirement under the Streamlined Foreign Offshore Procedures, individuals who are not U.S. citizens or lawful permanent residents, or estates of individuals who were not U.S. citizens or lawful permanent:

1. In any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed,

2. Should not have met the substantial presence test under IRC Section 7701(b)(3).

Under 26 U.S.C. §7701(b)(3), an individual meets the substantial presence test if the sum of the number of days on which such individual was present in the United States during the current year and the 2 preceding calendar years (when multiplied by the applicable multiplier) equals or exceeds 183 days.

The IRS kindly provided this example:

Ms. X is not a U.S. citizen or lawful permanent resident, was born in France, and resided in France until May 1, 2012, when her employer transferred her to the United States. Ms. X was physically present in the U.S. for more than 183 days in both 2012 and 2013. The most recent 3 years for which Ms. X’s U.S. tax return due date (or properly applied for extended due date) has passed are 2013, 2012, and 2011. While Ms. X met the substantial presence test for 2012 and 2013, she did not meet the substantial presence test for 2011. Ms. X meets the non-residency requirement applicable to individuals who are not U.S. citizens or lawful permanent residents.

Contact Sherayzen Law Office for Legal Help with Your Undisclosed Foreign Accounts

If you have undisclosed foreign accounts, contact Sherayzen Law Office. Our experienced international tax law firm has helped numerous clients throughout the world with various types of voluntary disclosures from Modified Voluntary Disclosure to 2009 OVDP, 2011 OVDI, and 2012 OVDP. Our clients can be found on virtually all continents and in all major regions of the world.

If you are looking for reliable, experienced and creative ethical legal help, Contact Us to Schedule Your Confidential Consultation.

Offshore Accounts Tax Lawyer: Delinquent FBAR Submission

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If there is anything familiar left of the old offshore voluntary disclosure landscape for an Offshore Accounts Tax Lawyer after the 2014 update to the IRS Offshore Voluntary Disclosure Program (“OVDP”),  it will be the submission of delinquent FBARs under the old FAQ 17. Of course, under the new 2014 OVDP, there is no FAQ 17.

However, an Offshore Accounts Tax Lawyer will find a very similar language under the new “Delinquent FBAR Submission Procedures”.

Offshore Accounts Tax Lawyer: Old 2012 OVDP FAQ 17

Under the old 2012 OVDP FAQ 17, an Offshore Accounts Tax Lawyer would advise his U.S. clients who reported and paid tax on all their taxable income for prior years but did not file FBARs that there would be no penalties for the failure to file the delinquent FBARs. The key to the application of Q&A 17 is that there should be no underreported tax liabilities (actually, no underreported income at all) by the taxpayer and the taxpayer was not previously contacted regarding an income tax examination or a request for delinquent returns.

Offshore Accounts Tax Lawyer: New 2014 OVDP Delinquent FBAR Submission Procedure

The 2014 OVDP rules offer to an Offshore Accounts Tax Lawyer fairly similar language. They state that, where neither Streamlined Filing Compliance Procedures nor the OVDP rules are applicable because the taxpayer does not need to file delinquent or amended tax returns to report and pay additional tax, the IRS is not likely to impose penalties as long as three conditions are met:

1. The taxpayer has not filed a required Report of Foreign Bank and Financial Accounts (FBAR) (FinCEN Form 114, previously Form TD F 90-22.1);

2. The taxpayer is not under a civil examination or a criminal investigation by the IRS; and

3. The taxpayer has not already been contacted by the IRS about the delinquent FBARs.

In such case, an Offshore Accounts Tax Lawyer should advise his clients to file the delinquent FBARs according to the FBAR instructions and include a statement explaining why the FBARs are filed late. All FBARs are required to be filed electronically at FinCen (contact an Offshore Accounts Tax Lawyer for more details).

If all of these conditions are met and the taxpayer voluntary files the FBARs with an explanatory statement, the IRS promises not to impose FBAR penalties. However, an Offshore Accounts Tax Lawyer should point out to his clients that, while the FBARs will not be automatically subject to audit, there is always a possibility that these FBARs may be selected for audit through the existing audit selection processes that are in place for any tax or information return.

Offshore Accounts Tax Lawyer: Issue of Streamlined vs. Delinquent FBAR Procedure

An interesting issue arises for an Offshore Accounts Tax Lawyer where the client closed his accounts four years ago (for example, in 2010) but still would have additional tax liability for the two years prior to that for year period (in this example, 2008 and 2009). Should an Offshore Accounts Tax Lawyer advise his client to enter the Streamlined Option at this point even though the amended tax returns would show no additional tax liability for the past three years?

In reality, situations are rarely as clear cut as this example and the legal determinations with respect to the path of your voluntary disclosure must be discussed with an experienced Offshore Account Tax Lawyer, at the international tax law firm of Sherayzen Law Office.

Contact Sherayzen Law Office for Help With Your Delinquent FBARs

If you have undisclosed foreign accounts, contact Sherayzen Law Office for professional legal help. Our experienced international tax law firm specializes in Offshore Voluntary disclosures and we can provide our expert opinion with respect to every offshore voluntary disclosure option open in your case.

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2014 OVDP Lawyers: August 4 2014 Deadline and New 50% OVDP Penalty

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2014 OVDP Lawyers identified August 4, 2014, as an important filing deadline to any U.S. taxpayers who intend to enter into the IRS Offshore Voluntary Disclosure Program (“OVDP”). This new deadline stems directly from the recent 2014 update to the OVDP. In this article, I want to briefly describe the deadline and its background, and why so many 2014 OVDP Lawyers are concerned about it.

2014 OVDP Lawyers: 2014 OVDP Background

The 2014 OVDP (really just an update to 2012 OVDP), like its predecessors, is a voluntary disclosure program created by the IRS to allow U.S. taxpayers with undisclosed foreign accounts to come forward under specific terms. The biggest advantage to participating in the OVDP is the reduction of civil penalties (especially in a willful situation) and avoidance of criminal liability.

Over the years, the offshore voluntary disclosure programs have gotten tougher and tougher, which, in the context of the 2012 OVDP, was considered by many 2014 OVDP Lawyers as unfair to taxpayers who were non-willful in their inability to comply with the U.S. tax requirements, especially FBARs (the Report of Foreign Bank and Financial Accounts).

Drawing on its own prior OVDP experience, the IRS finally agreed with the 2014 OVDP Lawyers and has made tremendous change to the OVDP on June 18, 2014. This new change is now known as the 2014 OVDP.

2014 OVDP Lawyers: The Resurrection of Willfulness vs. Non-Willfulness

One the biggest changes to the OVDP program is the resurrection of the distinction between willful and non-willful failure to comply with U.S .tax laws – a distinction that has always existed in the statutory framework of U.S. tax laws, but has been ignored by the designers of the OVDP until June 18, 2014.

As a result of this new approach to OVDP, many 2014 OVDP Lawyers now argue that 2014 OVDP is strictly reserved to U.S. taxpayers who were willful in their non-compliance with the FBAR deadlines and other U.S. international tax reporting requirements. The non-willful U.S. taxpayers now have the option of entering a Streamlined Procedure to do their voluntary disclosure.

2014 OVDP Lawyers: August 4 Increase in Offshore Penalty to 50%

Due to this re-discovered distinction between willful and non-willful conduct, the IRS now appears to have assumed that anyone entering OVDP has willfully violated U.S. tax laws. Hence, as of August 4, 2014, the IRS intends to toughen the OVDP penalties.

Under the prior 2012 OVDP, the 2014 OVDP Lawyers were familiar with a three-tier penalty structure with the penalty rates of 5%, 12.5% and 27.5%. The 2014 OVDP completely replaced this structure with a new two-tier penalty structure. Until August 4, 2014, everyone in the OVDP or submitting the preclearance letter to the IRS Criminal Investigation Unit will be subject to a 27.5% penalty.

However, beginning on August 4, 2014, any taxpayer who has an undisclosed foreign financial account will be subject to a 50% Offshore Penalty if, at the time of submitting the preclearance letter to IRS Criminal Investigation, an event has already occurred that constitutes a “public disclosure”.

2014 OVDP Lawyers: Definition of “Public Disclosure”

Many 2014 OVDP Lawyers are now becoming familiar with a new definition of what constitutes a “public disclosure” under the new 2014 OVDP rules. There are three events specifically listed by the IRS as constituting “public disclosure”.

First, there is a public disclosure of a foreign account if “the foreign financial institution where the account is held, or another facilitator who assisted in establishing or maintaining the taxpayer’s offshore arrangement, is or has been under investigation by the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person.” FAQ 7.2 for 2014 OVDP. In other words, if the your foreign bank is under the investigation from the IRS or the Department of Justice, your account is deemed to have been publicly disclosed by the IRS.

In essence, this means that U.S.-held accounts in any banks designated as Category One banks (contact 2014 OVDP Lawyers for further clarification of this definition) by the DOJ Program for Swiss Banks are deemed to have been publicly disclosed. Moreover, other banks can be easily added by the IRS to the list and any accounts held in these banks will also be subject to the 50% penalty.

Second, there is a public disclosure of a foreign account if “the foreign financial institution or other facilitator is cooperating with the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person.” Id.

Finally, there is a public disclosure of a foreign account if “the foreign financial institution or other facilitator has been identified in a court- approved issuance of a summons seeking information about U.S. taxpayers who may hold financial accounts (a ‘John Doe summons’) at the foreign financial institution or have accounts established or maintained by the facilitator.” Id. The IRS further states that examples of a public disclosure include, among others, a public filing in a judicial proceeding by any party or judicial officer, or public disclosure by the Department of Justice regarding a Deferred Prosecution Agreement or Non-Prosecution Agreement with a financial institution or other facilitator.

2014 OVDP Lawyers: June 18, 2014 List of Banks Included in the Definition of “Public Disclosure”

Here is the IRS list of these financial institutions current as of June 18, 2014 (as stated above, the IRS can expand this list at any moment):

1. UBS AG
2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
3. Wegelin & Co.
4. Liechtensteinische Landesbank AG
5. Zurcher Kantonalbank
6. swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
7. CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
9. The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates

2014 OVDP lawyers should be aware of this list when talking with their clients.

2014 OVDP Lawyers: Scope of 50% Penalty

Understanding the scope of the 50% penalty is very important for the 2014 OVDP lawyers and their clients. The crucial feature of the 50% penalty is that, once it is applied to one account or asset, the IRS will apply it to all of the taxpayer’s assets subject to the Offshore Penalty. This even includes accounts which are held at another bank and which have not been “publicly disclosed”.

Contact Sherayzen Law Office for Help With YourVoluntary Disclosure of Foreign Accounts

If you have undisclosed foreign accounts and any other foreign assets, you should contact Sherayzen Law Office for professional legal help with your offshore voluntary disclosure. The new 2014 OVDP contains many crucial deadlines and new options. Our experienced international tax law firm has helped hundreds of U.S. taxpayers throughout the world and we can help you.

Contact Us to Schedule Your Confidential Consultation.

DOJ Program for Swiss Banks: Important June 2014 Developments

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In a series of articles, we covered the U.S. Department of Justice’s new voluntary disclosure program for Swiss banks and the four filing categories involved. In June of 2014, a number of important developments regarding the DOJ Program for Swiss Banks occurred.

In this article, we will explain some of these new developments. This article is intended to provide interested individuals with general information about these developments, and does not convey tax or legal advice. If you have an offshore account, you should seek the advice of a tax attorney as significant penalties are involved. The experienced tax law firm of Sherayzen Law Office, Ltd. can assist you in your voluntary offshore disclosure and other tax and legal matters.

DOJ Program for Swiss Banks: DOJ Extends Deadline for Category 2 Swiss Banks

On June 5, 2014, the U.S. Department of Justice announced that it would extend the original June 30 deadline for category 2 Swiss banks for one month until July 31st. According to various new sources, the deadline was extended because of the difficulties Swiss banks were having in attempting to verify whether the accounts of U.S. taxpayers were undeclared or disclosed in a timely fashion to the IRS.

More than 100 Swiss banks have already applied under the DOJ program for Swiss Banks. For U.S. taxpayers with undisclosed bank accounts in Switzerland, this is highly welcome news.

Goldman Sachs and Morgan Stanley Swiss Units Apply to Enter the DOJ Program for Swiss Banks; Citigroup and J.P. Morgan Maybe Next

Recently, the Swiss units of Goldman Sachs Group Inc. and Morgan Stanley announced that they will enter the DOJ Program for Swiss Banks. According to various sources, Goldman’s Swiss private bank managed nearly $12 billion in assets as of year-end 2013. Morgan Stanley’s Swiss private bank managed about $50.7 billion- most of this amount however, was located in its branches in Hong Kong and Singapore.

Citigroup Inc. and J.P. Morgan also have Swiss operations; according to several news sources, Citibank Switzerland AG did not yet enter category 2, but this is definitely a possibility. Same is true of J.P. Morgan’s private Swiss bank.

DOJ Program for Swiss Banks: Credit Suisse Pleads Guilty

Recently, Credit Suisse pleaded guilty to conspiracy and agreed to pay $2.6 billion in a settlement with the DOJ. Please, read this article for more information.

DOJ Likely to Increase Focus on Undisclosed Accounts of US Taxpayers in the Cayman Islands, Singapore and Cook Islands, Among Others

The DOJ and the IRS have provided various indications that they intend to expand the scope of the U.S. pursuit of undisclosed foreign accounts to other major tax havens, such as Cayman Islands, Singapore, Cook Islands, Panama, et cetera.

For example, in an interview concerning the Credit Suisse case, Kathryn Keneally, former head of the Justice Department’s tax division, signaled the DOJ’s intentions to increase their focus on other tax-havens. After noting that the U.S. has traced (often, using the information collected during the DOJ Program for Swiss Banks) the money transfers to accounts held by U.S. persons in banks located in the Cayman Islands and other Caribbean countries, India, Israel, Luxembourg, and Lichtenstein, she highlighted the following: “It’s fair to say we know where the tax-haven countries are. You’ve got Singapore, you’ve got the Cook Islands… .”

The DOJ Program for Swiss Banks has provided an enormous amount of information regarding not only the Swiss bank accounts, but transfers to other countries. As Dena Iverson, a DOJ spokeswoman noted in a recent news article, “Through the program [the DOJ Program for Swiss Banks], as well as through ongoing investigations and other law enforcement tools, we are confident that we will obtain information that will lead us to account holders who have thought for too long that they can keep hiding.”

U.S. persons who hold accounts in Singapore, Cook Islands, Cayman Islands, Israel, India, Lebanon and other “target” countries should immediately seek advice in disclosing their offshore accounts. The worldwide FATCA compliance, combined with the potential of having another equivalent of the DOJ Program for Swiss Banks in any other of these countries, makes it simply reckless to wait for the DOJ and the IRS investigations.

2014 OVDP

On June 18, 2014, the IRS announced a major update to its 2012 Offshore Voluntary Disclosure Program (OVDP), which includes new opportunities and penalties. See this article for further information.

The 2014 OVDP is directly relevant to U.S. taxpayers with undisclosed accounts in Swiss Banks which are currently working within the DOJ Program for Swiss Banks, because the banks’ disclosure of the unreported accounts may substantially reduce the available voluntary disclosure options for the U.S. taxpayers who own these accounts. Moreover, the US taxpayers with undisclosed accounts in the entities that are categorized under the DOJ Program for Swiss Banks as Category 1 banks may be subject to heightened penalties under the new 2014 OVDP rules.

This is why it is very important to coordinate your voluntary disclosure with the DOJ Program for Swiss Banks.

Contact Sherayzen Law Office for Professional Help with Your Offshore Voluntary Disclosure

If you have undisclosed foreign accounts in Switzerland, contact Sherayzen Law Office for experienced legal help. Whether or not you received a letter from a Swiss Bank pursuant to the DOJ Program for Swiss Banks, time is likely to be of critical importance for you.

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