international tax lawyers

American Taxpayer Relief Act of 2012: Individual Income Tax Rates for 2013

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The American Taxpayer Relief Act of 2012 (the “Act”) was signed into law on January 2, 2013. The Act contains numerous important tax provisions aimed at stabilizing the tax environment and averting the so-called “fiscal cliff.” One of the most important effects of the Act is its impact on the marginal individual income tax rates.

The Act permanently extends the 10%, 25%, 28%, 33%, and 35% individual income tax rates in effect in 2012 except for taxpayers with taxable income above a certain threshold amount. For the taxpayers with taxable income above the threshold amount the marginal tax rate will be 39.6%.

As adjusted for inflation, the following marginal income tax rates will apply to individuals in the tax year 2013:

Filing Single

10% $0 – $8,925
15% $8,925 – $36,250
25% $36,250 – $87,850
28% $87,850 – $183,250
33% $183,250 – $398,350
35% $398,350 – $400,000
39.6% $400,000 and greater

Notice the minuscule range of the 35% tax bracket.

Filing Married Filings Jointly

10% $0 – $17,850
15% $17,850 – $72,500
25% $72,500 – $146,400
28% $146,400 – $223,050
33% $223,050 – $398,350
35% $398,350 – $450,000
39.6% $450,000 and greater

Filing Married Filings Separately

10% $0 – $8,925
15% $8,925 – $36,250
25% $36,250 – $73,200
28% $73,200 – $111,525
33% $111,525 – $199,175
35% $199,175 – $225,000
39.6% $225,000 and greater

Filing Head of Household

10% $0 – $12,750
15% $12,750 – $48,600
25% $48,600 – $125,450
28% $125,450 – $203,150
33% $203,150 – $398,350
35% $398,350 – $425,000
39.6% $425,000 and greater

OVDP Offshore Penalty Structure: Introduction

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The official IRS Offshore Voluntary Disclosure Program (OVDP) constitutes a viable voluntary disclosure option for many taxpayers. However, whether this is the best voluntary disclosure option will, in large part, depend on whether the OVDP penalties are lower than the penalties that a taxpayer would be facing under alternative voluntary disclosure options.

The answer to this critical question depends on your attorney’s ability to properly estimate potential OVDP penalties. In this article, I will focus on introducing the general structure of the Offshore Penalty (note that the income-tax related penalties are not discussed in this article).

OVDP Offshore Penalty

It is a requirement of the OVDP that the taxpayers who enter the program pay the Offshore Penalty. This penalty is imposed in lieu of all other penalties that may apply to the taxpayer’s undisclosed foreign assets and entities, including FBAR and offshore-related information return penalties and tax liabilities for years prior to the voluntary disclosure period.

General Structure of the Offshore Penalty

The Offshore Penalty incorporates a penalty structure which contains three different penalty rates. The default penalty rate is 27.5% of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the period covered by the voluntary disclosure (the “penalty base”).

The default penalty rate applies to all cases except the cases where the two alternative rates apply: 12.5% and 5%. Each of these exceptions has its own set of strict requirements; the 5% penalty rate structure is much more diverse and complex that the 12.5% one, but the IRS will expect strict compliance with all of the terms of these exceptions. In my practice, I often find that the IRS will be pressuring hard to disqualify a taxpayer from alternative penalty rates.

Whether your particular case satisfies the requirements of either or both of the alternative penalty rates is the question that only your attorney can answer. The qualification is highly fact-dependent and will require a very detailed analysis of your situation.

Calculation of the Offshore Penalty

The Offshore Penalty calculation consists of three steps. First, your attorney should determine what assets should be included in the calculation of the Offshore Penalty (i.e. determine the penalty base). Second, your attorney should determine what penalty rate should apply to your assets (i.e. determine what penalty category applies). Finally, after the determinations under the first and second step are made, you attorney should determine the highest account balance (if the asset is a financial account) and the fair market value of other assets, convert the values to US dollars and apply the appropriate penalty rate (i.e. calculation of penalty base and application of the penalty rate).

Contact Sherayzen Law Office for Help With Your Offshore Voluntary Disclosure

Sherayzen Law Office can help you with the disclosure of any of your foreign assets. Our international tax firm is highly experienced in conducting offshore voluntary disclosures. We will thoroughly analyze your case, assess your current tax liability as well as the liability that you would face under the OVDP, determine the available disclosure options and implement the appropriate disclosure strategy (including preparation of all legal and tax documents as well as IRS representation).

Contact Sherayzen Law Office NOW to schedule your consultation!

FBAR Version That Should Be Used in the OVDP

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The Voluntary Disclosure Period for the taxpayers who entered into the now closed IRS Offshore Voluntary Disclosure Program (“OVDP”) encompasses an eight-year period during which the FBAR form may have been modified more than once. The question arises about what version of the FBAR form should be used in the OVDP.

FBAR Background

Pursuant to the Bank Secrecy Act, 31 U.S.C. §5311 et seq., the Department of Treasury (the “DOT”) has established certain recordkeeping and filing requirements for the United States persons with financial interests in or signature authority (and other comparable authority) over financial accounts maintained with financial institutions in foreign countries. If the aggregate balances of such foreign accounts exceed $10,000 at any time during the relevant year, FinCEN Form 114 formerly Form TD F 90-22.1 (also known as the “FBAR”) must be filed with the DOT.

OVDP Guidance on the FBAR Version

The IRS unequivocally stated that, during the OVDP process, the taxpayers should use the most current version Form 114, for filing delinquent FBARs to report foreign accounts maintained in prior years. However, the taxpayers may rely on the FBAR guidance that was applicable for the calendar year that is being reported.

As of February of 2013, the most current version was the one that was revised in January 2012.

Contact Sherayzen Law Office for Help With Your Offshore Voluntary Disclosure

If you have undisclosed foreign accounts and you have not filed the applicable FBARs, contact Sherayzen Law Office for help NOW.

Our international tax firm is highly experienced in conducting offshore voluntary disclosures. We will thoroughly analyze your case, assess your current FBAR liability as well as the liability that you would face under the OVDP, determine the available disclosure options and implement the appropriate disclosure strategy (including preparation of all legal and tax documents as well as IRS representation).

Request for Extension to Submit Your Voluntary Disclosure Package

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In an earlier article, I already described the general process of the Offshore Voluntary Disclosure Program. In that article, I mentioned that you must make a complete submission of your Voluntary Disclosure Package within 90 days of the date of the preliminary acceptance letter from the IRS Criminal Investigation.

What if you cannot make a complete submission by the date specified in this preliminary acceptance letter?

In this case, you or your attorney may request an extension of the deadline to complete your voluntary disclosure submission. With the request for extension, you must submit your name, address, date of birth, and social security number and as much of the Voluntary Disclosure Package documentation as possible. At the very minimum, with the Request for Extension, your attorney should include properly completed and signed agreements to extend the period of time to assess tax (including tax penalties) and to assess FBAR penalties.

Requests for up to a 90 day extension must include a statement of those items that are missing, the reasons why they are not included, and the steps taken to secure them.

As of February of 2013, Requests for Extensions must be made in writing and sent to the Austin Campus on or before the date specified in the letter from Criminal Investigation for completing the voluntary disclosure:

Internal Revenue Service
3651 S. I H 35 Stop 4301 AUSC
Austin, TX 78741
ATTN: Offshore Voluntary Disclosure Program

Contact Sherayzen Law Office for Professional Help with OVDP

If you are already in the OVDP or you are only considering the option of doing so, contact Sherayzen Law Office as soon as possible. Our experienced international tax firm will thoroughly review your case, identify the available options, implement the agreed-upon legal strategy, guide your case through the entire process of the OVDP and rigorously represent your interests during your negotiations with the IRS.

Switzerland Signs FATCA Implementation Agreement

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On February 14, 2013, the U.S. Department of the Treasury announced that it has signed a bilateral agreement with Switzerland to implement the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA).

Enacted by Congress in 2010, FATCA targets non-compliance by U.S. taxpayers using foreign accounts. The bilateral agreement signed today is the first based on the model published in November of 2012 – the second of two model agreements – and marks another important step in establishing a common approach to combating tax evasion.

Switzerland is one of eight countries that have already signed or initialed an intergovernmental agreement (IGA) which helps to facilitate the effective and efficient implementation of FATCA. In addition to the previously announced countries, Treasury initialed an IGA with Italy on January 24. Treasury is engaged with more than 50 countries and jurisdictions to curtail offshore tax evasion, and more signed agreements are expected to follow in the near future.

The IRS was very pleased: “today’s announcement marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion,” said Acting Secretary of the Treasury Neal S. Wolin. “We are pleased that Switzerland has signed a bilateral agreement with us, and we look forward to quickly concluding agreements based on this model with other jurisdictions.”

It should be remembered that on January 17, 2013, the Treasury Department and the IRS finalized the regulations implementing FATCA. Therefore, it is expected that FATCA world-wide compliance will begin in earnest by the end of the year.

Implementation of FATCA means an immensely higher chance of detection of the non-compliant U.S. taxpayers with undisclosed foreign accounts. It is highly important to conduct voluntary disclosure prior to IRS detection, because an IRS investigation will preclude the possibility of entering in the 2012 Offshore Voluntary Disclosure Program (now closed) and seriously endanger other disclosure options.

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

If you have undisclosed offshore accounts, contact Sherayzen Law Office to discuss your voluntary disclosure options. Our experienced international tax law firm will thoroughly analyze your case, assess your current FBAR and Form 8938 liability, identify the voluntary disclosure options available to you and implement the desired disclosure option, including preparation of all legal and tax documents.