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FATCA Criminal Penalties | International Tax Lawyer & Attorney

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While there are a number of articles in professional publications and attorneys’ blogs covering the civil penalties associated with a failure to comply with the Foreign Account Tax Compliance Act (“FATCA”), there is almost a complete silence with respect to FATCA criminal penalties. This essay intends to fill this gap by introducing its readers to potential FATCA criminal penalties that the IRS may pursue in case of FATCA noncompliance.

FATCA Criminal Penalties: FATCA Background and FFI Reporting Requirements

Congress enacted the Foreign Account Tax Compliance Act (“FATCA”) as part of the Hiring Incentives to Restore Employment (“HIRE”) Act of 2010. The law revolutionized international tax compliance, because, for the very first time, it forced all foreign financial institutions (“FFIs”) to report their US account holders to the IRS, including their names, account numbers and highest values of these accounts.

In other words, FATCA has turned all compliant FFIs into IRS agents. FFIs now carry the entire burden of automatically (and, it is important to emphasize the word “automatically”) disclosing all of the FATCA-required information directly to the IRS. The IRS now only needs to properly process and analyze the data in order to identify noncompliant taxpayers and investigate them.

How did the Congress achieve this goal? It imposed a very harsh penalty on FATCA-noncompliant FFIs without paying much attention to the potential legal and political implications such an over-reaching law has for the sovereignty of other nations. FATCA created a new tax withholding regime under which every noncompliant FFI faces a 30% withholding with respect to any incoming transaction. The penalty is imposed on the gross amount of a transaction, which means that using a noncompliant FFI may result in a net loss for the parties engaged in the transaction.

The net impact of the FATCA FFI penalty is that no bank or person would wish to utilize a noncompliant FFI, effectively cutting off the latter from the any USD-nominated transactions and the world markets.

FATCA Criminal Penalties: FATCA Requirements Imposed on US Taxpayers

FATCA created a new tax reporting obligation specifically for US taxpayers called Form 8938. I have discussed Form 8938 in detail elsewhere on my website and here I will provide just a very simplified description of this requirement. A Specified Person (who can be an individual or an entity) must file Form 8938 if the value of his Specified Foreign Financial Assets (SFFAs) exceeds a certain filing threshold which is determined by the tax return filing status of the Specified Person.

SFFAs are defined very broadly to include pretty much any type of a financial asset, an ownership interest in a foreign business, ownership of a beneficiary interest in a foreign trust, ownership interest in a foreign trust under the IRC Sections 671 through 679, et cetera. Additionally, Form 8938 requires the Specified Person to report foreign income attributable to holding or disposing of SFFAs.

Failure to file Form 8938 may lead to an imposition of a $10,000 civil penalty, subject to reasonable cause exception. An additional $10,000 penalty applies if the taxpayer fails to file Form 8938 within 90 days after the IRS mails notice of the failure to file the form. If the taxpayer persists in his failure to file the form, the IRS will impose additional $10,000 for each thirty-day periods the failure continues up to the maximum of $50,000. It is important to note that the statute of limitations does not start to run if Form 8938 has not been filed.

FATCA Criminal Penalties in General

Interestingly, the US Congress did not create any separate FATCA criminal penalties. The IRS and the US Department of Justice (“DOJ”), however, have not had any problems in engaging into criminal prosecutions of FATCA violations.

There are three major provisions that the IRS and the DOJ can rely upon in their criminal prosecution of FATCA violations. First, 18 U.S.C. section 371 (see below for more details). Second, 26 U.S.C. 7201 – a felony charge for intentional filing of a false Form 8938. Finally, 26 U.S.C. 7203 – a misdemeanor charge for a willful failure to file Form 8938.

So far, the IRS and the DOJ have used Section 371 more than Sections 7201 and 7203. However, as time goes on, I expect that Sections 7201 and 7203 will be used more extensively.

Since Section 371 criminal charges are the most common at this point, let’s explore this type of a criminal prosecution charge in more detail.

FATCA Criminal Penalties: 18 U.S.C. Section 371

As long as there is enough evidence, the IRS and the DOJ can use 18 U.S.C. section 371 to prosecute US taxpayers based on a charge of engaging in a FATCA-related conspiracy. This is likely to become the most favorite tool to prosecute persons for aiding US clients to circumvent FATCA requirements, including tax withholding provisions.

The DOJ already used this tool as early as within two months after FATCA tax withholding obligations became effective in July of 2014. On September 9, 2014, Mr. Robert Bandfield, five other individuals and six corporations were charged under 18 U.S.C. section 371 for a conspiracy to aid US clients with evasion of FATCA reporting requirements.

It is important to point out that criminal charges under 18 U.S.C. section 371 are especially dangerous for foreigners who help US taxpayers with tax evasion.

Contact Sherayzen Law Office for Professional Help With a Willful Failure to File Forms 8938

For persons who willfully failed to file their Forms 8938, the best strategy to avoid a criminal prosecution is to engage in a voluntary disclosure of their undisclosed foreign assets before the IRS finds out about your willful FATCA violations. Sherayzen Law Office can help you!

While the IRS flagship Offshore Voluntary Disclosure Program (“OVDP”) was closed on September 28, 2019, the IRS updated its traditional voluntary disclosure program in November of 2018 to help willful taxpayers voluntarily disclose their prior tax noncompliance. I will refer to this option as Modified Traditional Voluntary Disclosure (“MTVD”).

Sherayzen Law Office can help you with MTVD and any other type of a voluntary disclosure. Our highly-experienced team of tax professionals has helped hundreds of US taxpayers to successfully conduct an offshore voluntary disclosure of their undisclosed foreign assets and foreign income. We have prevented the initiation of numerous criminal prosecutions and saved tens of millions of dollars in penalties for our clients. We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

Offshore Bank Accounts Remain on the IRS 2019 Dirty Dozen List

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On March 15, 2019, the IRS announced that it will keep undisclosed offshore bank accounts on its 2019 Dirty Dozen list.

2019 Dirty Dozen List: Background Information

The “Dirty Dozen” list is complied annually by the IRS. It consists of common tax scams and noncompliance schemes that the IRS prioritizes in its enforcement efforts. Many of these scams and schemes peak during the tax filing season, but offshore evasion is present throughout the year.

2019 Dirty Dozen List: Offshore Evasion Remains a Priority for the IRS

Despite many years of an intense focus on this area, the IRS still priorities its enforcement efforts in the area of offshore evasion. “Offshore evasion remains a primary focal point of overall IRS enforcement efforts,” said IRS Commissioner Chuck Rettig. “Our Criminal Investigation and civil enforcement teams work closely with the Justice Department in the international arena to ensure our nation’s tax laws are followed. Taxpayers considering hiding funds or assets offshore should think twice; the civil penalties and criminal sanctions can be severe.”

2019 Dirty Dozen List: Undisclosed Offshore Bank Accounts May Lead to Criminal Prosecution and Imposition of Huge Civil Penalties

This is very much true. Over the years, the IRS has conducted thousands of offshore-related audits that resulted in the imposition of multimillion-dollar civil penalties as well as additional tax liability. Moreover, the IRS has also been very active in pursuing criminal penalties, which resulted in the collection of billions of dollars in criminal fines and restitution.

Many of these cases involved undisclosed offshore bank accounts. In fact, the IRS has expressly warned noncompliant taxpayers that hiding income in undisclosed offshore bank accounts may result in significant penalties as well as criminal prosecution.

2019 Dirty Dozen List: Common Schemes Involving Undisclosed Offshore Bank Accounts

The IRS has identified numerous schemes that involve undisclosed offshore bank accounts. The most simple of them (and the one that is becoming increasingly rare) is the direct ownership of secret offshore bank accounts and brokerage accounts. The more sophisticated schemes use nominee entities and prepaid debit cards. The most complicated schemes often involve foreign trusts, employee-leasing schemes, private annuities and insurance plans.

The IRS has emphasized that it is not illegal to have offshore bank accounts, foreign business entities and foreign trusts. All of these foreign assets, however, must be disclosed and the appropriate US taxes must be paid.

2019 Dirty Dozen List: How the IRS Finds Out About Schemes In order to Prosecute Noncompliant Taxpayers

There are many different ways for the IRS to find out about undisclosed offshore accounts and schemes that involve such accounts. Let’s briefly review the top four of them. First, the IRS has built up a significant pile of information from prior prosecutions of taxpayers with undisclosed foreign accounts as well as bankers and other financial experts suspected of helping clients hide their assets overseas. Each new audit and prosecution continues to bring in more information.

Second, the IRS also received a huge amount of information from US taxpayers who participated in the different versions of the IRS Offshore Voluntary Disclosure Program (“OVDP”) during 2004-2018 as well as Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures. OVDP has been particularly helpful, because it involved a large number of taxpayers who could be classified as willful in their prior noncompliance.

Third, the IRS has also obtained very sophisticated information concerning offshore schemes from the Swiss Bank Program. As part of this program, Swiss banks disclosed their strategies for using undisclosed offshore bank accounts to hide income overseas.

Finally, as a result of the implementation of the Foreign Account Tax Compliance Act (“FATCA”) and the network of Intergovernmental Agreements (“IGAs”), there is a continuous and automatic flow of information concerning US-owned accounts from third parties to the IRS.

Contact Sherayzen Law Office for Professional Help With the Voluntary Disclosure of Your Undisclosed Foreign Assets

The fact that undisclosed offshore bank accounts remain on the 2019 Dirty Dozen list demonstrates the IRS commitment to fighting tax noncompliance in this area. As a result of the information collection efforts by the IRS, US taxpayers with undisclosed foreign accounts are at a severe risk of discovery by the IRS.

This is why, if you have undisclosed foreign assets or foreign income, you should contact Sherayzen Law Office for professional help as soon as possible. We have helped hundreds of US taxpayers around the world with their offshore voluntary disclosures, and We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

Colombian Bank Accounts | International Tax Lawyer & Attorney Miami

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Even today many US owners of Colombian bank accounts remain completely unaware of the numerous US tax requirements that may apply to them. The purpose of this essay is to educate these owners about the requirement to report income generated by these accounts in the United States as well as the FBAR and FATCA obligations concerning the disclosure of ownership of Colombian bank accounts to the IRS.

Colombian Bank Accounts: Individuals Who Must Report Them

Before we discuss the aforementioned requirements in more detail, we need to determine who is required to comply with them. In other words, is every Colombian required to file FBAR in the United States? Or, does this obligation apply only to certain individuals?

The answer is very clear: only Colombians who fall within one of the categories of US tax residents must comply with these requirements. US tax residents include US citizens, US Permanent Residents, an individual who satisfies the Substantial Presence Test and an individual who properly declares himself a US tax resident. There are important exceptions to this general rule, but, if you fall within any of these categories, you need to contact an international tax attorney as soon as possible to determine your US tax obligations concerning your ownership of Colombian bank accounts.

Colombian Bank Accounts: Income Reporting

All US tax residents are subject to the worldwide income reporting requirement. In other words, they must disclose on their US tax returns not only their US-source income, but also their foreign income. The latter includes all bank interest income, dividends, royalties, capital gains and any other income generated by Colombian bank accounts.

The worldwide income reporting requirement also requires the disclosure of PFIC distributions, PFIC sales, Subpart F income and GILTI income. These are complex requirements which are outside the scope of this article, but US owners of Colombian bank accounts need to be aware of the existence of these requirements.

Colombian Bank Accounts: FinCEN Form 114 (FBAR)

FinCEN Form 114, the Report of Foreign Bank and Financial Accounts (commonly known as “FBAR”) mandates US tax residents to disclose their ownership interest in or signatory authority or any other authority over Colombian bank and financial accounts if the aggregate highest balance of these accounts exceeds $10,000. Every part of this sentence has a special significance and contains a trap for the unwary.

The most dangerous of these traps is the definition of an “account”. The FBAR definition of account is much broader than how this word is generally understood by taxpayers. For the purposes of FBAR compliance, this term includes checking accounts, savings accounts, fixed-deposit accounts, investments accounts, mutual funds, options/commodity futures accounts, life insurance policies with a cash surrender value, precious metals accounts, earth mineral accounts, et cetera. In fact, it is very likely that the IRS will find that an account exists whenever there is a custodial relationship between a foreign financial institution and a US person’s foreign asset.

FBAR has its own intricate penalty system which is widely known for its severity. The FBAR penalties range from incarceration to willful and even non-willful penalties which may easily exceed the value of the penalized accounts. In order to circumvent the potential 8th Amendment challenges and make the penalty imposition more flexible, the IRS has implemented a system of self-imposed limitations, but it is a completely voluntary system (i.e. the IRS can, and in fact already did several times, disregard these limitations).

Colombian Bank Accounts: FATCA Form 8938

While Form 8938 is a relative newcomer (since tax year 2011), it has occupied a special place among the US international tax requirements. In fact, one could argue that it is currently as important as FBAR for US taxpayers with Colombian bank accounts.

The Foreign Account Tax Compliance Act (“FATCA”) gave birth to Form 8938, making it part of a taxpayer’s federal tax return. This means that a failure to file Form 8938 may render the entire federal tax return incomplete, and the IRS may be able to audit the return. Immediately, we can see the profound impact Form 8938 has on the Statute of Limitations for the entire tax return.

Given the fact that it is a direct descendant of FATCA, it is not surprising Form 8938’s primary focus is on foreign financial assets. Form 8938 requires a US taxpayer to disclose all Specified Foreign Financial Assets (“SFFA”) as long as he satisfies the relevant filing threshold. The filing thresholds differ depending on the filing status and the place of residence (i.e. inside or outside of the United States) of the taxpayer.

SFFA includes an enormous variety of foreign financial assets, including foreign bank and financial accounts. In fact, with respect to bank and financial accounts, Form 8938 is very similar to FBAR, which often results in double-reporting of the same assets. It is important to emphasize that Form 8938 does not replace FBAR, both forms must still be filed. In other words, US taxpayers should report their Colombian bank accounts on FBAR and disclose them again on Form 8938.

Form 8938 has its own penalty system which contains some unique elements. In addition to its own $10,000 failure-to-file penalty, Form 8938 directly affects the accuracy-related income tax penalties and the ability of a taxpayer to use foreign tax credit.

Contact Sherayzen Law Office for Professional Help With the US Tax Reporting of Your Colombian Bank Accounts

US international tax compliance is extremely complex. It is very easy to get yourself into trouble, and much more difficult and expensive to get yourself out of this trouble. If you have Colombian bank accounts, contact the experienced international tax attorney and owner of Sherayzen Law Office, Mr. Eugene Sherayzen. Mr. Sherayzen has helped hundreds of US taxpayers with their US international tax issues, and He can help You!

Contact Mr. Sherayzen Today to Schedule Your Confidential Consultation!

US Taxpayers with Lombard Odier Bank Accounts At Risk | OVDP News

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On July 31, 2018, the US Department of Justice (“DOJ”) announced that it signed an Addendum to a non-prosecution agreement with Bank Lombard Odier & Co., Ltd. (“Lombard Odier). The Addendum requires Lombard Odier to disclose additional 88 accounts; in other words, US taxpayers who own these additional Lombard Odier bank accounts are now at a high risk of a criminal prosecution by the IRS.

Lombard Odier Bank Accounts: Background Information on the Swiss Bank Program and Original Non-Prosecution Agreement

The new Addendum to the non-prosecution agreement was signed by Lombard Odier as part of the Swiss Bank Program that was created by the DOJ on August 29, 2013. The Swiss Bank Program is basically a voluntary disclosure program for Swiss banks, which allows the banks to avoid potential criminal prosecution for helping US taxpayers evade US tax laws (the so-called Category 2 banks). As part of their voluntary disclosure, the participating banks were required, among other things, to provide all of the required information concerning bank accounts owned (directly or indirectly) by US taxpayers. The information was provided on an account-by-account basis, rather than per taxpayer.

Overall, the DOJ executed non-prosecution agreements with 80 banks between March of 2015 and January of 2016, collecting $1.36 billion in penalties. Lombard Odier signed the original non-prosecution agreement on December 31, 2015, and paid $99 million in penalties.

Addendum to the Original Agreement Concerning Additional 88 Lombard Odier Bank Accounts

It appears that, when the original non-prosecution agreement was signed, Lombard Odier failed to account for certain additional accounts owned by US persons. The bank later realized its mistake and disclosed it to the DOJ.

As a result of this disclosure, the July 31, 2018 Addendum to the original non-prosecution agreement was signed. Under the Addendum, Lombard Odier will pay the additional sum of $5,300,000 and disclose 88 additional Lombard Odier bank accounts owned by US persons.

Impact of the Addendum on US Taxpayers With Undisclosed Lombard Odier Bank Accounts

The Addendum means that the IRS now has knowledge of additional 88 Lombard Odier bank accounts that were not previously disclosed. US owners of these accounts are now at a risk of willful FBAR penalties and potential criminal prosecution if they have not yet entered into an IRS voluntary disclosure program. A quiet disclosure of these accounts will not suffice to protect these taxpayers against the IRS criminal prosecution.

Contact Sherayzen Law Office for Help With the Disclosure of Your Lombard Odier Bank Accounts and Any Other Foreign Bank Accounts

If you are the owner of any of the 88 Lombard Odier bank account or if you have other undisclosed foreign bank accounts, contact the experienced legal team of Sherayzen Law Office. We have helped hundreds of US taxpayers around the world to bring their undisclosed foreign assets, including foreign bank and financial accounts, into full compliance with the US tax laws. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Ireland-Kazakhstan Tax Treaty Ratified | International Tax Lawyer News

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On December 29, 2017, the President of Kazakhstan Nazarbayev signed the law for the ratification of the Ireland-Kazakhstan Tax Treaty for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income.

History of the Ireland-Kazakhstan Tax Treaty

The Ireland-Kazakhstan Tax Treaty was originally signed in Astana on April 26, 2017. Ireland already ratified the treaty through Statutory Instrument 479 on November 10, 2017. By ratifying the treaty on December 29, 2017, Kazakhstan completed the process for the treaty ratification on the part of Kazakhstan.

The Ireland-Kazakhstan Tax Treaty will enter into force once the ratification instruments are exchanged. The provisions of the Treaty will apply from January 1 of the year following its entry into force. The Treaty is the first tax treaty between Ireland and Kazakhstan.

Taxes Covered by the Ireland-Kazakhstan Tax Treaty

The Ireland-Kazakhstan Tax Treaty will apply to the following taxes. With respect to Ireland, the Treaty will apply to the income tax, the universal social charge, the corporation tax and the capital gains tax. For Kazakhstan, it will apply to the corporate income tax and the individual income tax. Identical or substantially similar taxes imposed by either state after the Treaty was signed are also covered by the Treaty.

Main Provisions of the Ireland-Kazakhstan Tax Treaty

Here is an overview of the most important provisions. Obviously, this is a very general description for educational purposes only, and it cannot be relied upon as a legal advice; you should contact a licensed attorney in Ireland or Kazakhstan for legal advice.

Article 4 of the Ireland-Kazakhstan Tax Treaty defines the meaning of the term “resident”. It should be noted that the Treaty applies only to Irish and Kazakh residents (see Article 2 of the Treaty).

Article 5 defines the term Permanent Establishment.

Article 6 states that income from the “immovable” property (i.e. real estate) is subject to taxation in a country where it is located. This includes business real estate. This provision, of course, does not exempt the owner of the real estate from the obligation to also pay taxes in his home country.

Article 7 deals with business profits. It states that “the profits of an enterprise of a Contracting State shall be taxable only in that Contracting State unless that enterprise carries on business in the other Contracting State through a permanent establishment situated therein.” In the latter case, “the profits of the enterprise may be taxed in the other Contracting State but only so much of them as is attributable to that permanent establishment.”

Article 8 states that “profits of an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that Contracting State.”

Article 9 deals with Associated Enterprises.

Article 10 establishes the maximum tax rates for dividends. In general, dividends should be taxed at a maximum rate of 5% if the beneficial owner is a company (other than a partnership) that directly holds at least 25 percent of the capital of the payer company; in all other cases, the tax rate should be no more than 15%.

Articles 11 and 12 establish the maximum tax withholding rate of 10% for interest and royalties respectively.

Articles 13 – 22, 24 and 25 deal with capital gains, employment income, director fees and certain special cases.

Article 23 establishes the usage of foreign tax credit to eliminate double-taxation under the Treaty.

Information Exchange and Tax Enforcement under the Ireland-Kazakhstan Tax Treaty

The Ireland-Kazakhstan Tax Treaty contains fairly strong provisions on the information exchange and tax enforcement. Article 26 provides for exchange of relevant tax information described in the Treaty. Article 27 obligates the signatory states to lend assistance for the purposes of collection of taxes.

Information Exchange under the Ireland-Kazakhstan Tax Treaty and FATCA Compliance

Article 26 of the Ireland-Kazakhstan Tax Treaty could be dangerous to US citizens who are also either Kazakh residents or citizens. The reason for it is FATCA which would obligate Ireland to turn over the information it receives under the Treaty directly to the IRS in cases where this information concerns noncompliant US tax residents. This may lead to an IRS investigation and the imposition of FBAR and other penalties on these US taxpayers.

Contact Sherayzen Law Office if You Have Unreported Foreign Accounts in Ireland or Kazakhstan

If you have undisclosed foreign accounts and/or foreign income in Ireland and Kazakhstan, contact Sherayzen Law Office as soon as possible. Our firm specializes in offshore voluntary disclosures and has helped hundreds of US taxpayers to deal with this issue. We can help You!

Contact Us Today for Your Confidential Consultation!