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2018 FBAR Civil Penalties | FBAR Tax Lawyer & Attorney

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Following the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, the FBAR civil penalties are adjusted every year by the IRS for inflation. In this brief article, I would like to describe the new 2018 FBAR Civil Penalties that may be assessed by the IRS with respect to FBAR noncompliance.

2018 FBAR Civil Penalties: Pre-2016 FBAR Penalty System

The FBAR penalty system was already complex prior to the FBAR penalty inflation adjustment. It consisted of three different levels of penalties with various levels of mitigation. The highest level of penalties consisted of criminal penalties. The most dreadful penalty was imposed for the willful failure to file FBAR or retain records of a foreign account while also violating certain other laws – up to $500,000 or 10 years in prison or both.

The next level consisted of civil penalties imposed for a willful failure to file an FBAR – up to $100,000 or 50% of the highest balance of an account, whichever is greater, per violation per year.

The third level of penalties were imposed for the non-willful failure to file an FBAR. The penalties were up to $10,000 per violation per year. It is also important to point out that the subsequent laws and IRS guidance imposed certain limitations on the application of the non-willful FBAR penalties.

Finally, there were also penalties imposed solely on businesses for negligent failure to file an FBAR. These penalties were up to $500 per violation; if, however, there was a pattern of negligence, the negligence penalties could increase ten times up to $50,000 per violation.

2018 FBAR Civil Penalties: Penalty Adjustment System

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 further complicated the already complex FBAR penalty system, including for 2018 FBAR civil penalties.

As a result of the Act, with respect to post-November 2, 2015 violations, the exact amount of penalties will depend on the timing of the IRS penalty assessment, not when the FBAR violation actually occurred.

For example, in 2017, the IRS announced that if the IRS penalty assessment was made after August 1, 2016 but prior to January 16, 2017, then the maximum non-willful FBAR penalty per violation would be $12,459 and the maximum willful FBAR penalty per violation would be the greater of $124,588 or 50% of the highest balance of the account.

Similarly, if the penalty was assessed after January 15, 2017, the maximum non-willful FBAR penalty would increase to $12,663 per violation and the maximum civil willful FBAR penalty would be the greater of $126,626 or 50% of the highest balance of the account.

Now, in 2018, post-January 15, 2017 FBAR penalties are adjusted higher.

2018 FBAR Civil Penalties: 2018 Inflation Adjustment

The new 2018 FBAR civil penalties for FBAR violations have increased as a result of inflation. If a penalty was assessed after January 15, 2017, the maximum 2018 FBAR civil penalties for a non-willful violation increased from $12,663 to $12,921. Similarly, the maximum 2018 FBAR civil penalties for a willful violation assessed after January 15, 2017 increased from $126,626 to $129,210.

It should be emphasized that the IRS currently interprets the term “violation” as a failure to report an account on an FBAR. In other words, these higher 2018 FBAR civil penalties can be assessed on a per-account basis.

Contact Sherayzen Law Office for Professional Help with 2018 FBAR Civil Penalties

If you have not filed your FBAR and you want to do a voluntary disclosure; if you are being audited by the IRS with the possibility of the imposition of FBAR penalties; or FBAR penalties have already been assessed and you believe that they are too high, you should contact Sherayzen Law Office for professional help.

Sherayzen Law Office has helped hundreds of US taxpayers to deal with their FBAR penalties on all levels: offshore voluntary disclosure, FBAR Audit pre-assessment, post-audit FBAR penalty assessment and FBAR litigation in a federal court. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

IRS Prioritizes Combating Offshore Tax Cheating | Offshore Tax Lawyer

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On March 20, 2018, the IRS announced that offshore tax cheating – i.e. hiding money and other assets in unreported foreign accounts – remains on the IRS “Dirty Dozen” tax scams for the year 2018.

Offshore Tax Cheating: What is the “Dirty Dozen” List?

The IRS uses the “Dirty Dozen” list to describe various scams that a taxpayer may encounter and which form the focus of the IRS enforcement efforts. Some of these schemes peak during the tax filing season.

Illegal scams can lead to significant penalties and even possible criminal prosecution. The IRS Criminal Investigation Division works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

What is Offshore Tax Cheating?

In its most basic form, offshore tax cheating is a long-running scheme that uses foreign accounts to hide money in order to avoid paying US taxes. The taxpayers then use debit cards, credit cards or wire transfers to access the hidden accounts. More complex schemes include the usage of foreign corporations, foreign trusts, employee-leasing schemes, private annuities, insurance plans and other third-parties to conceal the real US owner of foreign accounts.

The most modern offshore tax cheating scheme has involved cryptocurrencies traded overseas and exchanged into a foreign currency by using an offshore account. The IRS has already begun addressing tax evasion based on virtual currencies, but we have not yet seen a fully-developed IRS enforcement in this area.

Offshore Tax Cheating is the Long-Standing Focus of the IRS

The IRS warns that taxpayers should be wary of these schemes, especially given the continuing focus on this issue by the IRS and the Justice Department.

In fact, since mid-2000s, offshore tax cheating has been one of the primary targets of the IRS. The IRS already conducted thousands of offshore-related civil audits that resulted in the payment of tens of millions of dollars in unpaid taxes. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

Every investigation yields important information that is used to learn about noncompliance patterns and commence other investigations. Some of these investigations may focus on bankers and financial advisors who helped set up a scheme that led to offshore tax cheating.

Offshore Voluntary Disclosure as a Way to Settle Prior Tax Noncompliance

If a taxpayer participated in scheme that the IRS may characterize as offshore tax cheating, he should consider doing a voluntary disclosure as soon as possible. It is very likely that the IRS will consider tax noncompliance associated with such a scheme as willful. Hence, the Offshore Voluntary Disclosure Program (“OVDP”) may be the primary choice for such taxpayers.

In fact, according to the IRS, more than 56,400 disclosures were made through various versions of OVDP since 2009. The IRS collected more than $11.1 billion from the OVDP during that time period.

Additionally, more than 65,000 taxpayers who claimed that they were non-willful in their prior tax noncompliance participated in the Streamlined Compliance Procedures. As I stated above, however, a taxpayer should be very careful about participating in the Streamlined Compliance Procedures if he participated in a scheme that the IRS may classify as offshore tax cheating.

OVDP Will Close on September 28, 2018

Taxpayers who wish to participate in the OVDP should consult Sherayzen Law Office as soon possible. The IRS recently announced that the OVDP will close on September 28, 2018.

Contact Sherayzen Law Office if You Wish to do an Offshore Voluntary Disclosure That Involves a Scheme Classified as Offshore Tax Cheating

If you participated in a scheme that the IRS may classify as offshore tax cheating, you should contact Sherayzen Law Office to explore your voluntary disclosure options as soon as possible.

Sherayzen Law Office is a leading international tax law firm that specializes in offshore voluntary disclosures, including OVDP (closed) and Streamlined Compliance Procedures. We have helped hundreds of US taxpayers around the world to bring their US tax affairs into full compliance with US tax laws, and We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

OECD Harmful Tax Practices & FDII | International Tax Law Firm

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The Organization for Economic Co-operation and Development (“OECD”) has detailed base erosion and profit-shifting (“BEPS”) rules. Among these rules are the OECD rules for countering harmful tax practices (“OECD Harmful Tax Practices Rules”). The 2017 Tax Cuts and Jobs Act introduced a new tax concept in the US Internal Revenue Code – foreign-derived intangible income (“FDII”). FDII has become a hot topic in international tax law, especially with respect to whether FDII constitutes a violation of the OECD Harmful Tax Practices Rules.

OECD Harmful Tax Practices Rules and Preferential Tax Regimes

The OECD Harmful Tax Practices Rules require that a preferential tax regime of any OECD nation satisfies the “substantial activities requirement”. In particular, the Intellectual Property income regimes must incorporate the “nexus approach” that limits the entitlement to the preferential tax regime based on the amount of the qualifying research and development costs incurred.

European Position: FDII May Violate OECD Harmful Tax Practices Rules

The Europeans started questioning the FDII’s compliance with the OECD Harmful Tax Practices Rules almost immediately. The main reason for their concern is that the FDII regime does not adopt the nexus approach while allowing US corporations to deduct 37.5% of their deemed intangible income generated abroad by the usage of the US Intellectual Property. The end-result of the FDII rules is the reduction of the effective tax rate on the FDII to a bit over 13%.

The Europeans question whether this result and the FDII rules in general are in conformity with BEPS’ minimum standards and the EU blacklist criteria.

US Position: FDII Does Not Violate OECD Harmful Tax Practices

The Department of the Treasury officials adopted a position exactly opposite to the Europeans (which is not surprising at all). The United States believes that the FDII rules only superficially resemble harmful tax practices, but, in reality, they are very different from traditional preferential tax regimes.

The United States urges the Europeans to consider the FDII tax regime in the context of the overall tax reform that is intended to equalize minimum tax rate that applies to foreign activities of a US corporation regardless of whether the income is earned directly by the US corporation or through it subsidiary (which would be classified as a CFC).

In other words, the FDII rules have a different purpose and effect when one looks at the broader context. They are designed to take away a tax incentive to transfer IP out of the United States into a low-tax foreign subsidiary . Therefore, according to the Department of the Treasury, the FDII tax regime will not create any harm that the OECD Harmful Tax Practices Rules were designed to prevent.

FDII Compliance With the OECD Harmful Tax Practices Rules Will Continue to Be in Dispute

The FDII rules’ compliance with the OECD Harmful Tax Practices Rules will continue to be a matter of debate and conflict between the United States and the EU countries. Additionally, there are very strong objections from the Europeans to the FDII rules from the WTO perspective. This conflict will likely grow into a formal legal dispute between the two economic giants.

Sherayzen Law Office will continue to follow this new dispute between the EU and the United States.

3 Main Streamlined Domestic Compliance Disadvantages | SDOP Lawyer

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In a previous article, I described the three main advantages of doing an offshore voluntary disclosure through Streamlined Domestic Offshore Procedures (“Streamlined Domestic Compliance”). Today, I would like to discuss three main Streamlined Domestic Compliance disadvantages.

Streamlined Domestic Compliance Disadvantages: Audit Risks

The first main disadvantage of Streamlined Domestic Compliance is the potential IRS audit within three years after the voluntary disclosure is completed. The audit is likely to include everything: FBARs, amended tax returns, Miscellaneous Offshore Penalty calculation and, most importantly, the determination of non-willfulness.

The potential IRS audit stands in a shark contrast to the IRS flagship Offshore Voluntary Disclosure Program (“OVDP”) which closed in September of 2018. At the end of a voluntary disclosure through OVDP, the taxpayer and the IRS sign the Closing Agreement, which (absent fraud or material mis-statements) effectively closes prior tax noncompliance issues forever.

The audit risks may be particularly important to taxpayers who are in the process of obtaining their US citizenship or US permanent residence.

Streamlined Domestic Compliance Disadvantages: Penalty Base Not Limited to Income Noncompliance

One of the main Streamlined Domestic Compliance disadvantages is the fact that the calculation of the penalty base (i.e. what assets are subject to the 5% penalty) includes assets that never produced any foreign income. Moreover, the penalty base includes a foreign asset even if the foreign income from this asset was timely disclosed on the taxpayer’s original tax return, but the asset itself was not reported on FBAR or any other international information return.

In other words, a taxpayer who participates in the Streamlined Domestic Compliance should be prepared to pay a 5% penalty even on assets that are compliant with the US income tax laws.

Again, this is contrary to the rules of the OVDP. In the OVDP, only assets that are tied to income tax noncompliance are included in the penalty base.

Streamlined Domestic Compliance Disadvantages: Danger of Superficial Analysis

Finally, the danger of superficial analysis concerning non-willfulness constitutes the third main disadvantage of the Streamlined Domestic Compliance. In reality, there are two dangers which should be placed at the opposite ends of the voluntary disclosure continuum.

The first danger is the natural bias in the self-assessment of non-willfulness. Oftentimes, a taxpayer may exaggerate the facts in his favor while selectively ignoring the facts that may establish willful noncompliance. This is very natural. It is difficult to find a person who will state outright that he was willful in his prior tax noncompliance.

Usually, this problem can be (and should be) fixed by retaining an international tax attorney to do an independent assessment of the taxpayer’s non-willfulness.

At the opposite end is the danger of concentrating on non-willfulness and ignoring the possibility of doing a Reasonable Cause disclosure. In most cases, this is not a problem because Streamlined Domestic Compliance would be a superior choice despite the 5% penalty. This, however, is not true in all cases and real opportunities are often lost by failure to explore this route.

I should state that the biggest problem that I found in my practice is the fact that some taxpayers do not consult an international tax attorney on this issue. Instead, they try to do everything themselves even though they have no specialized knowledge in this field. I strongly discourage this practice.

I believe that the involvement of an international tax attorney is essential to doing a proper offshore voluntary disclosure.

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

Choosing the correct offshore voluntary disclosure path is the most important decision for a taxpayer who wishes to remedy his past noncompliance with US tax laws. Every voluntary disclosure option has its advantages and disadvantages. All essential factors must be considered.

The failure to do proper legal analysis may have highly negative legal and tax consequences. It may even put a taxpayer in a position worse than what he was prior to his attempt to do a voluntary disclosure.

This is why you need the professional help of Sherayzen Law Office. Our experienced legal team has helped hundreds of US taxpayers to do their offshore voluntary disclosures properly. We Can Help You! Contact Us Today to Schedule Your Confidential Consultation!

2017 FBAR Currency Conversion Rates | FBAR Lawyer and Attorney

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Using proper currency conversion rates is a very important part of preparing 2017 FBAR and 2017 Form 8938. The instructions to both forms require (in case of FATCA Form 8938, this is the default choice) US taxpayers to use the 2017 FBAR Currency Conversion Rates published by the Treasury Department. The 2017 FBAR Currency Conversion Rates may also be used for other purposes, not just the preparation of the 2017 FBAR and Form 8938.

The 2017 FBAR Currency Conversion Rates are the December 31, 2017 rates officially published by the U.S. Department of Treasury (they are called “Treasury’s Financial Management Service rates” or the “FMS rates”) and they are the proper conversion rates that must be used while preparing FBAR and Form 8938.

Due to this importance of the 2017 FBAR Currency Conversion Rates to US taxpayers, international tax lawyers and international tax accountants, Sherayzen Law Office provides the table below the official 2017 FBAR Currency Conversion Rates (keep in mind, you still need to refer to the official website for any updates).

 

Country – Currency

Foreign Currency to $1.00
AFGHANISTAN – AFGHANI

69.3200
ALBANIA – LEK

110.6000
ALGERIA – DINAR

114.6590
ANGOLA – KWANZA

170.0000
ANTIGUA – BARBUDA – E. CARIBBEAN DOLLAR

2.7000
ARGENTINA – PESO

19.1600
ARMENIA – DRAM

485.0000
AUSTRALIA – DOLLAR

1.2790
AUSTRIA – EURO

0.8330
AZERBAIJAN – NEW MANAT

1.7100
BAHAMAS – DOLLAR

1.0000
BAHRAIN – DINAR

0.3770
BANGLADESH – TAKA

82.0000
BARBADOS – DOLLAR

2.0200
BELARUS – NEW RUBLE

1.9730
BELGIUM – EURO

0.8330
BELIZE – DOLLAR

2.0000
BENIN – CFA FRANC

562.3300
BERMUDA – DOLLAR

1.0000
BOLIVIA – BOLIVIANO

6.8600
BOSNIA – HERCEGOVINA – MARKA

1.6300
BOTSWANA – PULA

9.8040
BRAZIL – REAL

3.3120
BRUNEI – DOLLAR

1.3420
BULGARIA – LEV

1.6310
BURKINA FASO – CFA FRANC

562.3300
BURMA – KYAT

1354.0000
BURUNDI – FRANC

1720.0000
CAMBODIA (KHMER) – RIEL

4103.0000
CAMEROON – CFA FRANC

567.7900
CANADA – DOLLAR

1.2550
CAPE VERDE – ESCUDO

92.0260
CAYMAN ISLANDS – DOLLAR

0.8200
CENTRAL AFRICAN REPUBLIC – CFA FRANC

567.7900
CHAD – CFA FRANC

567.7900
CHILE – PESO

614.2300
CHINA – RENMINBI

6.5040
COLOMBIA – PESO

2981.7900
COMOROS – FRANC

411.0000
CONGO – CFA FRANC

567.7900
CONGO, DEM. REP – CONGOLESE FRANC

1580.0000
COSTA RICA – COLON

564.0000
COTE D’IVOIRE – CFA FRANC

562.3300
CROATIA – KUNA

6.2300
CUBA – PESO

1.0000
CYPRUS – EURO

0.8330
CZECH REPUBLIC – KORUNA

20.8840
DENMARK – KRONE

6.2070
DJIBOUTI – FRANC

177.0000
DOMINICAN REPUBLIC – PESO

48.1100
ECAUDOR – DOLARES

1.0000
EGYPT – POUND

17.7300
EL SALVADOR – DOLARES

1.0000
EQUATORIAL GUINEA – CFA FRANC

567.7900
ERITREA – NAKFA

15.0000
ESTONIA – EURO

0.8330
ETHIOPIA – BIRR

27.2000
EURO ZONE – EURO

0.8330
FIJI – DOLLAR

2.0170
FINLAND – EURO

0.8330
FRANCE – EURO

0.8330
GABON – CFA FRANC

567.7900
GAMBIA – DALASI

47.0000
GEORGIA – LARI

2.6100
GERMANY FRG – EURO

0.8330
GHANA – CEDI

4.5200
GREECE – EURO

0.8330
GRENADA – EAST CARIBBEAN DOLLAR

2.7000
GUATEMALA – QUENTZAL

7.3300
GUINEA – FRANC

9004.0000
GUINEA BISSAU – CFA FRANC

562.3300
GUYANA – DOLLAR

215.0000
HAITI – GOURDE

62.9500
HONDURAS – LEMPIRA

23.5000
HONG KONG – DOLLAR

7.8150
HUNGARY – FORINT

258.4500
ICELAND – KRONA

104.0900
INDIA – RUPEE

63.7500
INDONESIA – RUPIAH

13490.0000
IRAN – RIAL

36057.0000
IRAQ – DINAR

1166.0000
IRELAND – EURO

0.8330
ISRAEL – SHEKEL

3.4710
ITALY – EURO

0.8330
JAMAICA – DOLLAR

128.0000
JAPAN – YEN

112.5500
JERUSALEM – SHEKEL

3.4710
JORDAN – DINAR

0.7080
KAZAKHSTAN – TENGE

331.3100
KENYA – SHILLING

103.2000
KOREA – WON

1065.9301
KUWAIT – DINAR

0.3010
KYRGYZSTAN – SOM

69.0000
LAOS – KIP

8274.0000
LATVIA – EURO

0.8330
LEBANON – POUND

1500.0000
LESOTHO – SOUTH AFRICAN RAND

12.3160
LIBERIA – U.S. DOLLAR

125.1700
LIBYA – DINAR

1.3570
LITHUANIA – LITAS

0.8330
LUXEMBOURG – EURO

0.8330
MACAO – MOP

8.0000
MACEDONIA FYROM – DENAR

51.0700
MADAGASCAR – ARIA

3235.6201
MALAWI – KWACHA

731.0000
MALAYSIA – RINGGIT

4.0440
MALI – CFA FRANC

562.3300
MALTA – EURO

0.8330
MARSHALL ISLANDS – DOLLAR

1.0000
MARTINIQUE – EURO

0.8330
MAURITANIA – OUGUIYA

355.0000
MAURITIUS – RUPEE

33.4000
MEXICO – NEW PESO

19.7040
MICRONESIA – DOLLAR

1.0000
MOLDOVA – LEU

17.0580
MONGOLIA – TUGRIK

2427.3999
MONTENEGRO – EURO

0.8330
MOROCCO – DIRHAM

9.3520
MOZAMBIQUE – METICAL

58.8500
NAMIBIA – DOLLAR

12.3160
NEPAL – RUPEE

102.4000
NETHERLANDS – EURO

0.8330
NETHERLANDS ANTILLES – GUILDER

1.7800
NEW ZEALAND – DOLLAR

1.4050
NICARAGUA – CORDOBA

30.6000
NIGER – CFA FRANC

562.3300
NIGERIA – NAIRA

359.0000
NORWAY – KRONE

8.1960
OMAN – RIAL

0.3850
PAKISTAN – RUPEE

110.4000
PALAU – DOLLAR

1.0000
PANAMA – BALBOA

1.0000
PAPUA NEW GUINEA – KINA

3.1350
PARAGUAY – GUARANI

5574.0000
PERU – NUEVO SOL

3.2360
PHILIPPINES – PESO

49.8490
POLAND – ZLOTY

3.4830
PORTUGAL – EURO

0.8330
QATAR – RIYAL

3.6400
ROMANIA – LEU

3.8800
RUSSIA – RUBLE

57.8450
RWANDA – FRANC

855.0000
SAO TOME & PRINCIPE – DOBRAS

20597.2227
SAUDI ARABIA – RIYAL

3.7500
SENEGAL – CFA FRANC

562.3300
SERBIA – DINAR

101.3300
SEYCHELLES – RUPEE

13.3800
SIERRA LEONE – LEONE

7645.0000
SINGAPORE – DOLLAR

1.3360
SLOVAK REPUBLIC – EURO

0.8330
SLOVENIA – EURO

0.8330
SOLOMON ISLANDS – DOLLAR

7.4910
SOMALI – SHILLING

575.0000
SOUTH AFRICA – RAND

12.3160
SOUTH SUDANESE – POUND

126.0000
SPAIN – EURO

0.8330
SRI LANKA – RUPEE

153.4000
ST LUCIA – EC DOLLAR

2.7000
SUDAN – SUDANESE POUND

9.0000
SURINAME – GUILDER

7.5200
SWAZILAND – LILANGENI

12.3160
SWEDEN – KRONA

8.1930
SWITZERLAND – FRANC

0.9750
SYRIA – POUND

515.0000
TAIWAN – DOLLAR

29.6460
TAJIKISTAN – SOMONI

8.7500
TANZANIA – SHILLING

2235.0000
THAILAND – BAHT

32.6000
TIMOR – LESTE – DILI

1.0000
TOGO – CFA FRANC

562.3300
TONGA – PA’ANGA

2.1140
TRINIDAD & TOBAGO – DOLLAR

6.6300
TUNISIA – DINAR

2.4580
TURKEY – LIRA

3.7880
TURKMENISTAN – MANAT

3.4910
UGANDA – SHILLING

3635.0000
UKRAINE – HRYVNIA

28.1450
UNITED ARAB EMIRATES – DIRHAM

3.6730
UNITED KINGDOM – POUND STERLING

0.7400
URUGUAY – PESO

28.7600
UZBEKISTAN – SOM

8030.0000
VANUATU – VATU

105.0000
VENEZUELA – BOLIVAR

3345.0000
VIETNAM – DONG

22708.0000
WESTERN SAMOA – TALA

2.4400
YEMEN – RIAL

250.5000
ZAMBIA – NEW KWACHA

9.9750
ZAMBIA – KWACHA

5455.0000
ZIMBABWE – DOLLAR

1.0000