Asher Rubinstein in live Webinar on IRS Offshore Voluntary Disclosures, the Streamlined Disclosure Programs, FBAR Compliance, Tax Compliance, etc.

Asher Rubinstein will be speaking in an upcoming Strafford live webinar, “Streamlined Offshore Voluntary Disclosure Program: Avoiding Aggressive Enforcement Regime and Significant Penalties” scheduled for Tuesday, June 2, 1:00pm-2:30pm EDT.

On Mar. 6, 2015, an IRS official stated that the IRS is preparing a renewed, more intensive crackdown on offshore tax evasion.  Along with this heightened enforcement, the IRS has extended the streamlined filing compliance procedures indefinitely.  Taxpayers should act quickly to take advantage of the less-punitive streamlined filing compliance procedures, including the Delinquent FBAR Submission Procedures and the Delinquent International Information Return Submission Procedures (applying to, e.g., IRS Forms 5471 for “Controlled Foreign Corporations” [CFCs] and IRS Forms 3520 and 3520-A for foreign trusts).

Taxpayers, attorneys, CPAs and other advisors must understand the criteria as well as the process for submitting an application under these streamlined programs.  The benefit of the streamlined programs is that qualifying taxpayers will incur reduced or no penalties from failure to file FBARs and/or to include offshore income on a U.S. tax return.  A taxpayer may only qualify for the streamlined programs if the failure to file was non-willful or if the taxpayer had reasonable cause (in the case of the Delinquent International Information Return Submission Procedures).  There are many indicia of willfulness, and the background facts of each case are important.  A key element for determining whether a failure to file is willful is when the taxpayer learned of the filing requirements.

The IRS has stated that most of its upfront rejections of applications under the streamlined programs are due to the filing being insufficient or incorrect on its face.  Taxpayers and their advisors must know how to properly complete and file for each of these streamlined programs in order to avoid an upfront rejection.

Our panel will provide participants with the tools necessary to navigate the IRS rules governing the extended 2014 Offshore Voluntary Disclosure Program (2014 “OVDP”) to determine whether clients are eligible for the less arduous and punitive streamlined programs.

We will review these and other key issues:

  • What are the new 2014 OVDP requirements?
  • What are the new requirements for the streamlined programs? How may a taxpayer take advantage of the benefits of a streamlined program?
  • What best practices should be used in determining if a taxpayer qualifies for one of the streamlined programs?
  • How would a taxpayer demonstrate non-willfulness?
  • What conduct constitutes “willful” non-reporting?
  • What risks does an applicant in one of the Streamlined Programs face?
  • What are some of the other methods used by taxpayers to become tax compliant with respect to undeclared offshore income and undeclared offshore financial accounts and assets, and what is the viability of these methods?  Some of the methods that will be discussed include quiet disclosure, prospective compliance and expatriation.

After our presentations, we will engage in a live question and answer session with participants in order to answer your questions about these important issues directly about tax planning and other issues.

For more information or to register >

Or call 1-800-926-7926 ext. 10
Ask for Streamlined Offshore Voluntary Disclosure Program on 6/2/2015
Mention code: XA1F22-UTO1A5

Learn about Voluntary Disclosures of Foreign Accounts and Assets from an International Tax Lawyer

Asher Rubinstein, an international tax lawyer, will be a featured speaker at a Bloomberg webinar on March 18, 2015 titled, “Offshore Voluntary Disclosure: A Brief Guide to the Various IRS Programs and Other Ways of Becoming (and Remaining) Tax Compliant”.

This webinar will begin with a discussion of the recently revised Offshore Voluntary Disclosure Program (the “2014 OVDP”) as well as the new Streamlined Offshore Procedures Programs, the Delinquent FBAR Submission Procedures and the Delinquent International Information Return Submission Procedures.  In addition, the webinar will discuss other methods sometimes used by Taxpayers to become tax compliant (and the viability of these methods), such as Quiet Disclosure, Prospective Compliance and Expatriation.  The webinar will also discuss several hypothetical fact patterns dealing with several areas of law that often present practitioners with uncertainty, such as how to report Foreign Retirement Accounts.

If you are interested in tuning in to this webinar, please contact us for a discount code.

The Potential for the IRS to Become Even More Aggressive When Imposing Penalties for Not Filing FBARs for Foreign Accounts

As we’ve written, the law requires US taxpayers to report their ownership, signatory authority or other control over foreign financial accounts with a value in excess of $10,000.  The means of reporting such accounts are (1) on IRS Form 1040, Schedule B, where a taxpayer “checks the box” that he or she has such ownership or control over a foreign account, (2) on a form known as the “FBAR”, Report of Foreign Bank and Financial Accounts, FinCEN Form 114 (formerly TD 90-22.1), and (3) on IRS Form 8938, Statement of Specified Foreign Financial Assets.

The penalties for failure to file the FBAR are severe.  If the IRS determines that the failure was “willful”, then the penalties can be as high as $100,000 per year, per account, or 50% of the value of the account for each year of non-filing of the FBAR, whichever is higher.  If the failure to file the FBAR was non-willful, then the penalties are up to $10,000 per year, per account.  It is thus conceivable that the penalties can exceed the value of the account itself.  In such a case, the taxpayer remains obligated for the full amount of penalties, even after the funds in the foreign account are depleted by the penalties.  In other words, if the penalties exceed the value of the foreign account(s), the taxpayer is still “on the hook” for the full penalty amounts.

Note that the 50% penalty per account, per year is what the law allows the IRS to impose in penalties.  However, the IRS usually assesses the 50% penalty for one year only, usually the year with the highest account balance.  This is true even in criminal tax fraud prosecutions, when the government prosecutes taxpayers who failed to declare their foreign accounts.  In such prosecutions, the punishments which follow settlements, plea bargains and guilty pleas usually include one single FBAR penalty equal to 50% of the highest balance year, not 50% for each year which the law would otherwise allow.

A recent case, U.S.A. v. Zwerner, may change the usual practice of the IRS asserting the 50% penalty for one year only.  In Zwerner’s case, the IRS imposed the 50% penalty for each of four years of FBAR non-filing.  The highest balance in Zwerner’s unreported account was $1,691,054.  The FBAR penalties asserted by the IRS came to a total of $3,488,609.  On May 24, 2014, a jury in Federal District Court in Florida upheld FBAR penalties of $2,241,809.

The take-away from the Zwerner case is as follows:

1.   The IRS may now be emboldened to impose FBAR penalties for multiple years.  As noted, previous practice was for the IRS to assert the FBAR penalty for one year only, even in criminal tax fraud cases.  The IRS’ assertion of multiple year FBAR penalties in Zwerner’s case could have been seen as an outlier case.  However, after the jury upheld the multiple year FBAR penalties, the IRS, and prosecutors around the country, could rely on Zwerner to assert multiple year penalties.  This would be a change in IRS practice that would make the already-severe FBAR penalties even more crippling to taxpayers who did not file FBAR forms.

2.  Mr. Zwerner attempted to come into tax compliance; however, he did so not through the IRS Offshore Voluntary Disclosure Program (OVDP), but via an attorney who contacted the IRS Criminal Investigations (CI) Division on an anonymous basis.  Zwerner then filed amended tax returns with foreign income now reported, along with FBARs.  This is known as a “quiet disclosure”, and resulted in an audit.  One take-away from this case is that quiet disclosures do not work, as we’ve written before, and there is a substantial likelihood of an audit as a result of a quiet disclosure.  An additional lesson is that one must proceed with extreme caution with regard to unreported offshore accounts, and utilize tax attorneys who are experienced in offshore matters, U.S. tax compliance and IRS interaction.

3.  One possible negative conclusion from the Zwerner case is that coming into tax compliance by volunteering information to the IRS in an attempt to “clean up” offshore assets is risky, that the IRS will reward such positive intentions with severe FBAR penalties.  However, it should be noted that Mr. Zwerner’s attempts at compliance were themselves questionable.  First, his attorney came forward on an anonymous basis.  Second, Zwerner’s attempt at compliance, as noted above, was a “quiet disclosure”.

Taxpayers who seek to clean up their offshore non-compliance have a more reliable method, which is the IRS Offshore Voluntary Disclosure Program (OVDP).  Formally entering the OVDP subjects both the taxpayer and the IRS to a procedure and rules.  Taxpayers will benefit from the IRS not referring the matter to the US Department of Justice (DOJ) for a criminal tax fraud prosecution.  In addition, the penalties within the OVDP are pre-determined, usually 27.5% of the highest aggregate foreign account balance, which is in lieu of the more severe FBAR penalties (and other penalties) that would apply outside the OVDP (such as those penalties that applied to Mr. Zwerner’s quiet disclosure).  In short, the OVDP would have provided Zwerner with a much better result.

 4.  The jury found that Mr. Zwerner was “willful” in not filing his FBARs.  Further incriminating facts were that the accounts were in the name of two foundations, entities similar to trusts which are often used to create a layer between a US taxpayer and foreign assets, and further obscure the true beneficial ownership of the foreign assets.  Yet, Zwerner attempted to come into tax compliance.  Via counsel, he approached the IRS even before he was under audit or investigation, and when the IRS did not already know about his foreign accounts.  He attempted to do good and correct his past non-compliance, and he was rewarded with staggering FBAR penalties.  An additional point here is that an attempt at compliance at a later date may not negate non-compliance at an earlier date.  It is the equivalent to the IRS saying “thank you for reporting the accounts and paying taxes on the income in the accounts.  However, we are still going to hang you for not doing it properly initially.”  Again, the penalty within the OVDP would have been lower, and would have applied instead of the much higher penalties for willfully not filing the FBARs.

 5.  It remains to be seen whether the jury’s award of multiple year FBAR penalties will be upheld, or whether the award violates the Excessive Fines Clause of the Eighth Amendment to the United States Constitution.  The court will address this issue next.  Stay tuned, as the outcome will have an effect on enforcement of FBAR penalties across the country.

Please contact us with any questions about the FBAR form, foreign assets and U.S. tax compliance.

2013 Year End Notes, Part 3: Offshore Considerations

During 2013, the IRS and U.S. Department of Justice (DOJ) continued to successfully attack offshore banking “secrecy”.  The IRS’ success against UBS and other banks eroded Swiss banking secrecy, effectively ending “going offshore” to hide money from the IRS. Going offshore for asset protection from civil creditors, however, is still viable and effective, but must be tax-compliant. Continue reading

Should Everyone with Undeclared Foreign Assets Make a Voluntary Disclosure to the IRS? Are there Less Costly Alternatives to a Voluntary Disclosure?

We have written extensively about the erosion of foreign banking secrecy, IRS discovery of undeclared foreign accounts, and the IRS Offshore Voluntary Disclosure Program (OVDP) to come into tax compliance before the IRS discovers the foreign assets. However, entering the OVDP means that you will pay a 27.5% penalty on the highest aggregate value of the foreign assets.  We recognize that this penalty, although much less than civil and criminal tax fraud penalties, is still quite onerous.  The question thus becomes: are alternatives available to come into IRS compliance, and, at the same time, to also avoid the 27.5% penalty of the OVDP?

Continue reading

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