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Offshore Voluntary Disclosure Seminar | MSBA, February 22 2022

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On February 22, 2022, Mr. Eugene Sherayzen, an international tax attorney and founder of Sherayzen Law Office, Ltd., presented at a seminar “IRS Voluntary Disclosure Options for U.S. Owners of a Foreign Business” (the “Offshore Voluntary Disclosure Seminar”). The Offshore Voluntary Disclosure Seminar was sponsored by the International Business Law Section of the Minnesota State Bar Association. Due to the ongoing COVID-19 pandemic restrictions, the seminar was conducted online.

Offshore Voluntary Disclosure Seminar: Focus on Business Lawyers’ Needs

The seminar’s structure was shaped by its audience’s needs. Since Mr. Sherayzen presented to a group of mostly international business lawyers, he adopted a relatively broad approach in his presentation in attempt to cover a large number of topics rather than discuss a few points in depth. The idea behind the seminar was to provide international business lawyers with analytical tools to understand if there was problem with a client’s US international tax compliance that would require a utilization of an offshore voluntary disclosure option.

Offshore Voluntary Disclosure Seminar: Three Main Parts

Mr. Sherayzen divided the Offshore Voluntary Disclosure seminar into three parts. In the first and smallest part, he discussed the link between Offshore Voluntary Disclosures and international business law. The second part focused on US international tax reporting requirements. Finally, in the third part, the international tax attorney provided a broad overview of the existing offshore voluntary disclosure options.

Offshore Voluntary Disclosure Seminar: Link between Offshore Voluntary Disclosures and International Business Law

In the first part of the seminar, Mr. Sherayzen discussed the potential relevance of the IRS offshore voluntary disclosure options and US international tax law in general to the audience’s international business law practice. The international tax attorney even described three main scenarios where international business lawyers will need to have awareness of: US international tax reporting requirements and IRS offshore voluntary disclosure options for US owners of a foreign business. At that point, Mr. Sherayzen gave an example from his own practice illustrating his main points.

Offshore Voluntary Disclosure Seminar: Overview of US International Tax Reporting Requirements for US Owners of a Foreign Business

In the next part of the Offshore Voluntary Disclosure seminar, Mr. Sherayzen provided a broad overview of two major categories of US international tax reporting requirements for individual US taxpayers: US international information returns and income tax recognition.

The international tax attorney first focused on international information returns. After defining the term “information return”, Mr. Sherayzen stated that the type of an information return one needs to file should correspond to the type of a foreign entity for which the return is filed. Then, he described three types of entities that may exist under US international tax law: corporations, partnerships and disregarded entities. Mr. Sherayzen proceeded with a discussion of the most common information returns associated with each of them.

Moreover, the attorney explained that FinCEN Form 114 or FBAR is the main form for reporting of foreign bank and financial accounts in a business context. He also warned the audience against a potential tax trap associated with FBAR reporting for foreign business entities.

Then, Mr. Sherayzen proceeded with an explanation of three major categories of income recognition: distributions, passthrough income and US anti-deferral tax regimes. The latter received the most attention due to their complexity. Three anti-deferral tax regimes were covered: PFICs, Subpart F rules and GILTI.

Offshore Voluntary Disclosure Seminar: Offshore Voluntary Disclosure Options

Mr. Sherayzen began this last major part of his presentation with a definition of the term “offshore voluntary disclosure”. Then, he focused on explaining two critical factors in choosing a voluntary disclosure option: (a) willfulness vs. non-willfulness; and (b) reasonable cause.

After defining these highly-important terms, the attorney laid out all major offshore voluntary disclosure options available to US owners of a foreign business. The presentation covered: IRS Voluntary Disclosure Practice, Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures, Delinquent FBAR Submission Procedures, Delinquent International Information Return Submission Procedures and Reasonable Cause (Noisy) Disclosure.

Mr. Sherayzen also discussed the concept of quiet disclosure and why it presented potentially huge risks to noncompliant taxpayers. He emphasized that the IRS stated in the past that it would specifically target this type of a disclosure.

Offshore Voluntary Disclosure Seminar: Conclusion

The international tax attorney concluded the seminar with a concise due diligence plan of action for business lawyers. He emphasized that, upon discovery of potential US international tax noncompliance, business lawyers should not attempt to fix it themselves. Rather, he argued, they need to contact an international tax attorney for professional help.

Contact Sherayzen Law Office for Professional Help

If you are a US owner of a foreign business and you have not properly complied with your US international tax reporting requirements, contact Sherayzen Law Office for professional help. We have helped hundreds of US taxpayers around the globe to bring their US tax affairs into full compliance with US international tax law, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

2020 Streamlined Domestic Offshore Procedures: Pros and Cons

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Noncompliant US taxpayers with undisclosed foreign assets and foreign income should consider their voluntary disclosure options in this new year 2020. Similarly to 2019, I expect that this year Streamlined Domestic Offshore Procedures will continue to be the flagship voluntary disclosure option for such taxpayers who reside in the United States. In order for the readers to better understand why I make this assertion, I would like to discuss the advantages and disadvantages of participating in the 2020 Streamlined Domestic Offshore Procedures.

2020 Streamlined Domestic Offshore Procedures: Background Information and Purpose

The IRS created the Streamlined Domestic Offshore Procedures (sometimes abbreviated as “SDOP”) on June 18, 2014, though the Certification forms became available only a few months later. Since its introduction, Streamlined Domestic Offshore Procedures quickly eclipsed the then-existing IRS Offshore Voluntary Disclosure Program (“OVDP”) and became the most popular offshore voluntary disclosure option.

The main purpose of the Streamlined Domestic Offshore Procedures is to encourage noncompliant US taxpayers to voluntarily resolve their prior non-willful noncompliance with US international tax compliance requirements. These requirements include all US international information returns such as FBAR, Form 8938, Form 5471, Form 8621, Form 3520, Form 926, et cetera.

2020 Streamlined Domestic Offshore Procedures: Main Advantages

In exchange for this voluntary disclosure of their prior tax noncompliance, US taxpayers escape income tax penalties and pay only a one-time Miscellaneous Offshore Penalty with respect to their prior failures to file the required US international information returns. The Miscellaneous Offshore Penalty is usually far below the potential penalties normally associated with failure to file these forms. In other words, noncompliant taxpayers can greatly reduce their IRS noncompliance penalties through their participation in the Streamlined Domestic Offshore Procedures. This is one of the most important SDOP benefits.

Another advantage of the Streamlined Domestic Offshore Procedures is the limited scope of this voluntary disclosure option. Taxpayers only need to file a small number of amended US tax returns (usually three) and FBARs (usually six) – in other words, the filings are limited to regular statute of limitations without any expansions (as opposed to OVDP which required filings for the past eight years).

Moreover, despite the limited scope of the SDOP filings, taxpayers who utilize the Streamlined Domestic Offshore Procedures are able to fully resolve their prior US international tax noncompliance issues even if these years are not included in the actual SDOP filings. This means that the participating taxpayers are able “wipe the slate clean” – i.e. to erase their prior US international tax noncompliance from the time when it began.

The last major advantage of the Streamlined Domestic Offshore Procedures is that this option only requires to establish non-willfulness rather than reasonable cause. Non-willfulness is a much easier legal standard to satisfy (be careful, I am not saying that this is an “easy standard”, just an easier one) than reasonable cause.

2020 Streamlined Domestic Offshore Procedures: Main Disadvantages

For the purpose of this article, I will discuss only two major disadvantages to the Streamlined Domestic Offshore Procedures. First, the eligibility requirements are strict. This voluntary disclosure option is open only to taxpayers who filed their US tax returns for prior years and who are able to certify under the penalty of perjury that their prior noncompliance was non-willful. This certification has to be made specifically with respect to unreported foreign income, FBARs and each other international information return.

Most cases have positive and negative facts at the same time. Hence, a lot of taxpayers are actually in the “gray” area between willfulness and non-willfulness. This means that it is not easy to make a decision on whether a taxpayer is eligible to participate in the Streamlined Domestic Offshore Procedures. This decision should be done only by an experienced international tax attorney who specializes in this area of law, such as Mr. Eugene Sherayzen of Sherayzen Law Office.

The second major disadvantage of the Streamlined Domestic Offshore Procedures is lack of a definitive closure; there may be a follow-up audit after the IRS processes your voluntary disclosure package. Unlike OVDP, Streamlined Domestic Offshore Procedures does not offer a Closing Agreement without an audit. This means that going through Streamlined Domestic Offshore Procedures may not be the end of your case; the IRS can actually audit you over the next three years. If this happens, the audit of your voluntary disclosure will focus not only on the correctness of your disclosure, but also on the truthfulness and correctness of your non-willfulness certification.

Contact Sherayzen Law Office for Professional Help With 2020 Streamlined Domestic Offshore Procedures

If you have undisclosed foreign accounts or any other foreign assets, contact Sherayzen Law Office for professional help with your offshore voluntary disclosure. We have successfully helped hundreds of US taxpayers around the world with their offshore voluntary disclosures, including Streamlined Domestic Offshore Procedures. We can also help you!

Contact Us Today to Schedule Your Confidential Consultation!

The Booker Case: ex-CPA Indicted for FBAR violations | FBAR Lawyer News

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On August 27, 2019, the US Department of Justice (“DOJ”) announced that a federal grand jury returned a superseding indictment charging Mr. Brian Booker, a former resident of Fort Lauderdale, Florida, whose business specialized in international trade, with failing to file Reports of Foreign Bank and Financial Accounts (“FBARs”) and filing false documents with the Internal Revenue Service (IRS). Let’s discuss the Booker case in more detail.

Facts of the Booker Case According to Indictment

Mr. Booker was a Certified Public Accountant who owned a Panamanian cocoa trading company. He allegedly operated that company from Venezuela, Panama, and his former residence in Fort Lauderdale, Florida.

The superseding indictment alleges that, for calendar years 2011 through 2013, Mr. Booker failed to disclose his interest in financial accounts located in Switzerland, Singapore, and Panama on annual Reports of Foreign Bank and Financial Accounts (FBARs) as required by law. Booker also allegedly filed false individual income tax returns for tax years 2010 through 2012 that failed to report to the IRS all of his foreign bank accounts.

Moreover, the indictment alleges that Mr. Booker filed a false offshore voluntary disclosure under the Streamlined Domestic Offshore Procedures. The superseding indictment claims that Mr. Booker’s Streamlined submission falsely claimed that his failure to report all income, pay all tax and submit all required information returns, such as FBARs, was due to non-willful conduct.

The Booker Case: Potential Criminal Penalties

If convicted, Mr. Booker faces a maximum sentence of five years in prison for each count related to his failure to file an FBAR. He also faces a maximum sentence of three years in prison for each of the counts related to filing false tax documents.

The Booker Case: Mr. Booker is Presumed Innocent Until Proven Guilty

The readers should remember than an indictment is an accusation. A defendant is presumed innocent unless and until proven guilty.

The Booker Case: Potential Lesson for Streamlined Filers

The Booker case contains two valuable lessons for other US taxpayers who utilize the Streamlined Compliance Options, such as Streamlined Domestic Offshore Procedures (“SDOP”) and Streamlined Foreign Offshore Procedures (“SFOP”).

First, SDOP and SFOP are reserved for non-willful taxpayers only. If you were willful in your noncompliance, utilizing these options can result in a criminal investigation. It is not known if the IRS commenced the investigation of Mr. Booker due to his SDOP filing, but it is very possible that this was the case.

Second, the IRS does not simply “rubber-stamp” all SDOP and SFOP submissions. Taxpayers should expect a rigorous review of their cases.

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

If you are a taxpayer who has not filed his required FBARs, contact Sherayzen Law Office for professional help as soon as possible. We have helped hundreds of US taxpayers to utilize various offshore voluntary disclosure options, including SDOP and SFOP, to bring themselves into full compliance with US tax laws, and We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

Streamlined Domestic Offshore Procedures Audits | SDOP Tax Lawyer

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The great majority of offshore voluntary disclosures are currently done through Streamlined Filing Compliance Procedures. Hence, the majority of IRS audits concerning offshore voluntary disclosures are focused on Streamlined Filing Compliance Procedures – the most common type is the Streamlined Domestic Offshore Procedures Audit. This article discusses the main stages of the Streamlined Domestic Offshore Procedures Audit and provides some suggestions to attorneys who handle this type of an IRS audit.

Streamlined Domestic Offshore Procedures Audits: SDOP Background Information

Streamlined Domestic Offshore Procedures (“SDOP”) is an offshore voluntary disclosure option that has existed since June of 2014. It is extremely popular due the fact that it is the most convenient and the least expensive voluntary disclosure option (except the Reasonable Cause/Noisy Disclosure option) for taxpayers whose prior tax noncompliance was non-willful and who otherwise meet the SDOP eligibility requirements.

Under the SDOP, a taxpayer or tax professional prepares a voluntary disclosure package and mails it to the IRS. The voluntary disclosure package usually consists of amended tax returns for the past three years, copies of e-filed FBARs for the past six years, any required international information returns which do not form part of a tax return (such as Forms 3520), the payments of additional tax with interest, the payment of the Miscellaneous Offshore Penalty and Non-Willfulness Certification form (Form 14654) with a detailed explanation. Certain additional items may need to be included in the package.

Once the package arrives to its destination, it is processed by the IRS. Assuming that all of the SDOP submission requirements are met, the IRS reserves the right to audit the taxpayer(s) at any point within three years after the submission of the original SDOP voluntary disclosure package.

The exact process of a Streamlined Domestic Offshore Procedures Audit varies from case to case, but it usually contains all of the stages listed below.

Streamlined Domestic Offshore Procedures Audits: the Initiation Stage

All Streamlined Domestic Offshore Procedures Audits start in the same way. Once an IRS revenue agent is assigned to the case, the agent will send an initial letter to the taxpayer informing the taxpayer about the fact that his SDOP is being audited. Generally, the initial audit letter will explain that the IRS decided to examine certain tax returns and ask for all worksheets and supporting documents that were used to prepare the amended returns. The letter is likely to also contain a request for the taxpayer to contact the agent to schedule the initial meeting, which would usually include an interview of the taxpayer.

At this point, you should contact an international tax lawyer who specializes in Streamlined Domestic Offshore Procedures Audits. I strongly discourage you from even trying to represent yourself or to have your accountant represent you. It is very easy to get into trouble during an IRS audit and it is very hard and expensive to get out of such a situation afterwards.

Streamlined Domestic Offshore Procedures Audits: Initial Meeting and Interview Stage

Prior to the initial meeting, the taxpayer’s attorney should review all documents to make sure that they support the information on the tax returns. All supporting documents and worksheets should be neatly organized by subject and year. If the audited tax returns are incorrect, the attorney should make the decision on whether amended tax returns should be prepared prior to the initial meeting.

Additionally, the attorney should conduct an extensive preparation of his client for the interview. Read this article for more information on the IRS audit interview preparation specifically for Streamlined Domestic Offshore Procedures Audits.

The initial meeting usually commences with the interview of the taxpayer in the presence of his attorney. It is the attorney’s job to protect his client during the interview, including by making sure that the IRS questions are clear, explaining any confusing answers of the taxpayer, correcting the record based on available evidence and so on.

After the interview, the IRS agent will want to review with the attorney (and, sometimes, the client as well) the documents supplied on a very general level – i.e. he will want to know what is being submitted to him. The attorney should discuss with the agent any confusing parts of the case and familiarize the agent with the client’s story. If a case is very small, it is possible for an agent to cover everything in the first meeting, but it is very rare.

Streamlined Domestic Offshore Procedures Audits: Follow-Up IRS Requests

After the initial meeting, the IRS agent will take some time to review submitted documents, interview third parties where relevant (for example, the accountant who prepared the original tax returns), analyze the tax returns and the Non-Willfulness Certification.

Most likely, the agent will have additional follow-up questions. It is the job of the attorney to address them. Where necessary, the attorney should secure his client’s participation in order to answer the questions. In certain cases, additional meetings with the IRS agent may be required to increase the efficiency of the audit. Continuous cooperation with the IRS while promoting the client’s position is the key to long-term success.

One of the most problematic areas for the IRS agents in Streamlined Domestic Offshore Procedures Audits are PFIC calculations. A lot of agents simply do not know how to properly do PFIC calculations. In my practice, very often I have to go through the entire PFIC calculations with the agent in order to make sure that their calculations match mine.

Streamlined Domestic Offshore Procedures Audits: Conclusion of the IRS Audit

Once the IRS agent completes his review process, he will submit the preliminary results to the taxpayer and his attorney. The attorney needs to review carefully the final results and contact the agent in case he finds mistakes in the agent’s conclusions. The taxpayers’ attorney will also need to build a strategy with respect to the taxpayer’s response to the audit results depending on whether the taxpayer agrees or disagrees with the results of the audit.

The biggest issue in the Streamlined Domestic Offshore Procedures Audits is making sure that the Non-Willfulness Certification is not challenged by the IRS, because such a challenge may result in highly unfavorable consequences to the taxpayer, including a potential referral to the Tax Division of the US Department of Justice for a criminal investigation.

It should be mentioned that, even if the taxpayer agrees with the audit results, the Audit is not immediately over. The IRS agent will need to submit his conclusions to his technical advisor, his manager and the IRS National Office in Washington D.C. for the their approval of these conclusions before the audit can be officially completed.

Contact Sherayzen Law Office for Professional Help With Streamlined Domestic Offshore Procedures Audits

An IRS audit of an offshore voluntary disclosure completed through Streamlined Domestic Offshore Procedures is one of the most important events in a taxpayer’s life. A lot is at stake during such an audit – financial stability, immigration status and, in exceptional circumstances, even personal freedom.

This is why it is so important for a taxpayer subject to an IRS audit of his Streamlined Domestic Offshore Procedures voluntary disclosure to retain the services of an experienced international tax lawyer to handle the audit professionally.

Sherayzen Law Office is a leader in the area of offshore voluntary disclosures and IRS audits of offshore voluntary disclosures. The firm’s owner, Mr. Eugene Sherayzen, is one of the most experienced international tax lawyers in this area, including IRS audits of a Streamlined Domestic Offshore Procedures submission. He can help You!

Contact Sherayzen Law Office Today to Schedule Your Confidential Consultation!