Further Extension of Time for FBAR Filings by
Individuals with Signature Authority But No Financial Interest in Certain
Accounts (FinCEN Notice 2013-1),(Dec. 26, 2013)
The Financial Crimes Enforcement Network (FinCEN) announced a
further extension of time for certain Report of Foreign Bank and Financial
Accounts (FBAR) filings in light of ongoing consideration of questions
regarding the filing requirement and its application to individuals with
signature authority over but no financial interest in certain types of
accounts. The filing due date is being further extended to June 30, 2015, for
individuals whose filing due date for reporting signature authority was
previously extended by FinCEN Notice 2012-2
FinCEN continues to receive questions that require additional
consideration with respect to the exceptions addressed in prior notices. This
extension applies to the reporting of signature authority held during the 2013
calendar year, as well as all reporting deadlines extended by previous FinCEN
Notices 2011-1, 2011-2, 2012-1 and 2012-2. The filing date remains unchanged
for all other individuals with an FBAR filing obligation.
FinCEN Notice 2013-1
Penalties for failure to file a Report of Foreign Bank and
Financial Accounts (FBAR) were not imposed against an individual because the
IRS failed to establish that the individual willfully failed to disclose assets
held in a foreign account in violation of 31 U.S.C. §5314. Although the
individual checked the "No" box on Form 1040 indicating
that he had no foreign bank accounts and failed to timely submit Form TDF
90-22.1 (Report of Foreign Bank and Financial Accounts), these actions occurred
after he found out that the government knew of the account’s existence.
Therefore, he lacked motivation to willfully conceal the accounts after that
point.
J.B. Williams, DC Va., 2010-2 ustc ¶50,623.
The IRS has released a fact sheet that summarizes information
about federal income tax return and Report of Foreign Bank and Financial
Accounts (FBAR) filing requirements, how to file a federal income tax return or
FBAR, and potential penalties for failing to file or pay tax. Also summarized
is the filing requirement for foreign financial assets. The fact sheet notes
that no failure to file or failure to pay penalties will be imposed on
taxpayers who owe no federal tax. Also, no FBAR penalty applies if the IRS
determines that the violation was due to reasonable cause.
IRS Fact
Sheet FS-2011-13, December 8, 2011.
The IRS has reminded taxpayers that the 2011 Offshore Voluntary
Disclosure Initiative (OVDI) will expire on Aug. 31, 2011. The 2011 OVDI was
announced on Feb. 8, 2011 ( IRS News Release IR-2011-14) and offers clear
benefits to encourage taxpayers to come forward rather than risk detection by
the IRS. Taxpayers hiding assets offshore who do not come forward will face far
higher penalties along with potential criminal charges. For the 2011
initiative, there is a new penalty framework that requires individuals to pay a
penalty of 25 percent of the amount in the foreign bank accounts in the year
with the highest aggregate account balance covering the 2003 to 2010 time
period. Some taxpayers will be eligible for 5 or 12.5 percent penalties in
certain narrow circumstances. Participants also must pay back-taxes and
interest for up to eight years as well as paying accuracy-related and/or
delinquency penalties. All original and amended tax returns must be filed by
the deadline.
IRS News
Release IR-2011-84, August 8, 2011.
The IRS has extended the due date for offshore voluntary
disclosure initiative requests until September 9, 2011, due to the potential
impact of Hurricane Irene. By that date, taxpayers who have not yet submitted
their requests must submit identifying information to the Criminal
Investigation (CI) office. This includes name, address, date of birth, Social
Security Number, and as much of the other information requested in the
three-page Offshore Voluntary Disclosures Letter (OVDL) as possible. If the
OVDL cannot be completed and sent it to CI before the deadline, the taxpayer
should send as much information as possible by that time and then amend the
OVDL later. A taxpayer may request a 90-day extension of time to complete the
OVDL submission, which must be made before the September 9 deadline.
IRS Statement: OVDI Deadline Extension, August 26, 2011.
The
IRS has updated "frequently asked questions" addressing a
new special voluntary disclosure initiative intended to bring offshore money
back into the U.S. tax system. The initiative is aimed at individuals with
undisclosed income from hidden offshore accounts and was originally to be
available through August 31, 2011. The IRS has granted a 90-day extension from
that original August 31, 2011, deadline.
Full
Text—2011 Offshore Voluntary Disclosure Initiative Frequently Asked Questions
and Answers, Updated August 31, 2011.
2011
Offshore Voluntary Disclosure Initiative Frequently Asked Questions and Answers
NOTE (Aug. 29, 2011): The IRS
clarifies that the Sept. 9, 2011, extension also applies to taxpayers filing
delinquent FBARs pursuant to FAQs 17 and 18.
IRS Statement: OVDI Deadline Extension
(Aug. 26, 2011)
Due to the potential impact of Hurricane Irene, the IRS has
extended the due date for offshore voluntary disclosure initiative requests
until September 9, 2011. For those taxpayers who have not yet
submitted their request and any documents, the following actions are necessary
by September 9, 2011:
- Identifying
information must be submitted to the Criminal Investigation office. This
includes name, address, date of birth, and social security number and as
much of the other information requested in the Offshore Voluntary
Disclosures Letter as possible. This information must be sent to:
Offshore
Voluntary Disclosure Coordinator600 Arch Street, Room 6404Philadelphia, PA
19106.
- Send
a request for a 90-day extension for submitting the complete voluntary
disclosure package of information to the Austin campus. This request must
be sent to:
Internal
Revenue Service3651 S. I H 35 Stop 4301 AUSCAustin, TX 78741ATTN: 2011 Offshore
Voluntary Disclosure Initiative
FAQ
Updates:
Updated dates in Q1, 11, 15, 17, 18, and 38 posted 8/29/11
Q&A 24.1 posted 8/26/11
Q&A 25.1 revised 8/26/11
A51.2 Updated 8/19/11
Q&A 25.1 posted 6/2/11
Q&A 51.1 Posted 6/2/11
Q&A 51.2 Posted 6/2/11
Q&A 51.3 Posted 6/2/11
A32 Updated 6/2/11
A35 Updated 6/2/11
A51 Updated 6/2/11
A52 Updated 6/2/11
A47 - Updated 3/14/11
FAQ 5 & 50 - Updated 2/14/11
FAQ 8 - Updated 2/10/11
FAQ 1-53 - Posted 2/8/11
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Questions
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Answers
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Overview
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1.
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Why did the IRS announce a new special offshore voluntary
disclosure initiative at this time?
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The IRS's prior Offshore Voluntary Disclosure Program (2009 OVDP),
which closed on October 15, 2009, demonstrated the value of a uniform penalty
structure for taxpayers who came forward voluntarily and reported their
previously undisclosed foreign accounts and assets. Not only did the
initiative offer consistency and predictability to taxpayers in determining
the amount of tax and penalties they faced, it also enabled the IRS to
centralize the civil processing of offshore voluntary disclosures. Therefore,
it was determined that a similar initiative should be available to the large
number of taxpayers with offshore accounts and assets who applied to IRS
Criminal Investigation's traditional voluntary disclosure practice since the
October 15 deadline. This new initiative, the 2011 Offshore Voluntary
Disclosure Initiative (2011 OVDI) will be available to those taxpayers and
other similarly situated taxpayers who come forward and complete all
requirements on or before September 9, 2011.
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2.
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What is the objective of this initiative?
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The objective remains the same as the 2009 OVDP — to bring
taxpayers that have used undisclosed foreign accounts and undisclosed foreign
entities to avoid or evade tax into compliance with United States tax laws.
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3.
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How does this initiative differ from the IRS's longstanding
voluntary disclosure practice or the 2009 OVDP?
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The Voluntary Disclosure Practice is a longstanding practice of
IRS Criminal Investigation whereby CI takes timely, accurate, and complete
voluntary disclosures into account in deciding whether to recommend to the
Department of Justice that a taxpayer be criminally prosecuted. It enables
noncompliant taxpayers to resolve their tax liabilities and minimize their
chance of criminal prosecution. When a taxpayer truthfully, timely, and
completely complies with all provisions of the voluntary disclosure practice,
the IRS will not recommend criminal prosecution to the Department of
Justice.
This current offshore initiative is a counter-part to Criminal Investigation's Voluntary Disclosure Practice. Like its predecessor, the 2009 OVDP, which ran from March 23, 2009 through October 15, 2009, it addresses the civil side of a taxpayer's voluntary disclosure by defining the number of tax years covered and setting the civil penalties that will apply. |
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4.
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Why should I make a voluntary disclosure?
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Taxpayers with undisclosed foreign accounts or entities should
make a voluntary disclosure because it enables them to become compliant,
avoid substantial civil penalties and generally eliminate the risk of
criminal prosecution. Making a voluntary disclosure also provides the
opportunity to calculate, with a reasonable degree of certainty, the total
cost of resolving all offshore tax issues. Taxpayers who do not submit a
voluntary disclosure run the risk of detection by the IRS and the imposition of
substantial penalties, including the fraud penalty and foreign information
return penalties, and an increased risk of criminal prosecution. The IRS
remains actively engaged in ferreting out the identities of those with
undisclosed foreign accounts. Moreover, increasingly this information is
available to the IRS under tax treaties, through submissions by
whistleblowers, and will become more available as the Foreign Account Tax
Compliance Act (FATCA) and Foreign Financial Asset Reporting (new IRC §
6038D) become effective.
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5.
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What are some of the civil penalties that might apply if I don't
come in under voluntary disclosure and the IRS examines me? How do they work?
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Depending on a taxpayer's particular facts and circumstances,
the following penalties could apply:
• A penalty for failing to file the Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”). United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year. Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation. • A penalty for failing to file Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Taxpayers must also report various transactions involving foreign trusts, including creation of a foreign trust by a United States person, transfers of property from a United States person to a foreign trust and receipt of distributions from foreign trusts under IRC § 6048.This return also reports the receipt of gifts from foreign entities under section 6039F.The penalty for failing to file each one of these information returns, or for filing an incomplete return, is 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift. • A penalty for failing to file Form 3520-A, Information Return of Foreign Trust With a U.S. Owner. Taxpayers must also report ownership interests in foreign trusts, by United States persons with various interests in and powers over those trusts under IRC § 6048(b).The penalty for failing to file each one of these information returns or for filing an incomplete return, is five percent of the gross value of trust assets determined to be owned by the United States person. • A penalty for failing to file Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations. Certain United States persons who are officers, directors or shareholders in certain foreign corporations (including International Business Corporations) are required to report information under IRC §§ 6035, 6038 and 6046.The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return. • A penalty for failing to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Taxpayers may be required to report transactions between a 25 percent foreign-owned domestic corporation or a foreign corporation engaged in a trade or business in the United States and a related party as required by IRC §§ 6038A and 6038C. The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency. • A penalty for failing to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation. Taxpayers are required to report transfers of property to foreign corporations and other information under IRC § 6038B. The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional. • A penalty for failing to file Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. United States persons with certain interests in foreign partnerships use this form to report interests in and transactions of the foreign partnerships, transfers of property to the foreign partnerships, and acquisitions, dispositions and changes in foreign partnership interests under IRC §§ 6038, 6038B, and 6046A. Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit. • Fraud penalties imposed under IRC §§ 6651(f) or 6663. Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax. • A penalty for failing to file a tax return imposed under IRC § 6651(a)(1). Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent. • A penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2). If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent. • An accuracy-related penalty on underpayments imposed under IRC § 6662. Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty. |
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6.
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What are some of the criminal charges I might face if I don't
come in under voluntary disclosure and the IRS examines me?
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Possible criminal charges related to tax returns include tax
evasion (26 U.S.C. § 7201), filing a false return (26 U.S.C. § 7206(1)) and
failure to file an income tax return (26 U.S.C. § 7203). Willfully failing to
file an FBAR and willfully filing a false FBAR are both violations that are
subject to criminal penalties under 31 U.S.C. § 5322.
A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000. |
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KEY FEATURES OF INITIATIVE
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7.
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What are the terms of the 2011 Offshore Voluntary Disclosure
Initiative?
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Under the terms of the 2011 Offshore Voluntary Disclosure
Initiative, taxpayers must:
• Provide copies of previously filed original (and, if applicable, previously filed amended) federal income tax returns for tax years covered by the voluntary disclosure; • Provide complete and accurate amended federal income tax returns (for individuals, Form 1040X, or original Form 1040 if delinquent) for all tax years covered by the voluntary disclosure, with applicable schedules detailing the amount and type of previously unreported income from the account or entity (e.g., Schedule B for interest and dividends, Schedule D for capital gains and losses, Schedule E for income from partnerships, S corporations, estates or trusts). • File complete and accurate original or amended offshore-related information returns (see FAQ 29 for certain dissolved entities) and Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”) for calendar years 2003 through 2010; • Cooperate in the voluntary disclosure process, including providing information on offshore financial accounts, institutions and facilitators, and signing agreements to extend the period of time for assessing tax and penalties; • Pay 20% accuracy-related penalties under IRC § 6662(a) on the full amount of your underpayments of tax for all years; • Pay failure to file penalties under IRC § 6651(a)(1), if applicable; • Pay failure to pay penalties under IRC § 6651(a)(2), if applicable; • Pay, in lieu of all other penalties that may apply, including FBAR and offshore-related information return penalties, a miscellaneous Title 26 offshore penalty, equal to 25% (or in limited cases 12.5% (see FAQ 53) or 5% (see FAQ 52)) of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the period covered by the voluntary disclosure; • Submit full payment of all tax, interest, accuracy-related penalty, and, if applicable, the failure to file and failure to pay penalties with the required submissions set forth in FAQ 25 or make good faith arrangements with the IRS to pay in full, the tax, interest, and these penalties (see FAQ 20 for more information regarding a taxpayer's ability to fully pay) (the suspension of interest provisions of IRC § 6404(g) do not apply to interest due in this initiative); and • Execute a Closing Agreement on Final Determination Covering Specific Matters, Form 906. |
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8.
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How does the penalty framework work? Can you give us an example?
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The values of accounts and other assets are aggregated for each
year and the penalty is calculated at 25 percent of the highest year's
aggregate value during the period covered by the voluntary disclosure. If the
taxpayer has multiple accounts or assets where the highest value of some
accounts or assets is in different years, the values of accounts and other
assets are aggregated for each year and a single penalty is calculated at 25
percent of the highest year's aggregate value. For example, assume the
taxpayer has the following amounts in a foreign account over the period
covered by his voluntary disclosure. It is assumed for purposes of
the example that the $1,000,000 was in the account before 2003 and was not
unreported income in2003.
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Year
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Amount on Deposit
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Interest Income
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Account Balance
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2003
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$1,000,000
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$50,000
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$1,050,000
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2004
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$50,000
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$1,100,000
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2005
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$50,000
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$1,150,000
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2006
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$50,000
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$1,200,000
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2007
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$50,000
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$1,250,000
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2008
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$50,000
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$1,300,000
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2009
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$50,000
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$1,350,000
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2010
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$50,000
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$1,400,000
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(NOTE: This example does not provide for compounded interest,
and assumes the taxpayer is in the 35-percent tax bracket, does not have an
investment in a Passive Foreign Investment Company (PFIC), files a return but
does not include the foreign account or the interest income on the return,
and the maximum applicable penalties are imposed.)
If the taxpayers in the above example come forward and their voluntary disclosure is accepted by the IRS, they face this potential scenario: They would pay $518,000 plus interest. This includes: • Tax of $140,000 (8 years at $17,500) plus interest, • An accuracy-related penalty of $28,000 (i.e., $140,000 x 20%), and • An additional penalty, in lieu of the FBAR and other potential penalties that may apply, of $350,000 (i.e., $1,400,000 × 25%). If the taxpayers didn't come forward, when the IRS discovered their offshore activities, they would face up to $4,543,000 in tax, accuracy-related penalty, and FBAR penalty. The taxpayers would also be liable for interest and possibly additional penalties, and an examination could lead to criminal prosecution. The civil liabilities outside the 2011 Offshore Voluntary Disclosure Initiative potentially include: • The tax, accuracy-related penalties, and, if applicable, the failure to file and failure to pay penalties, plus interest, as described above, • FBAR penalties totaling up to $4,375,000 for willful failures to file complete and correct FBARs (2004 - $550,000, 2005 - $575,000, 2006 - $600,000, 2007 - $625,000, 2008 - $650,000, and 2009 - $675,000, and 2010 - $700,000), • The potential of having the fraud penalty (75 percent) apply, and • The potential of substantial additional information return penalties if the foreign account or assets is held through a foreign entity such as a trust or corporation and required information returns were not filed. Note that if the foreign activity started before 2003, the Service may examine tax years prior to 2003 if the taxpayer is not part of the 2011 OVDI. |
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9.
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What years are included in the 2011 OVDI disclosure period?
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Calendar year taxpayers must include tax years 2003 through 2010
in which they have undisclosed foreign accounts and/or undisclosed foreign
entities. Fiscal year taxpayers must include fiscal years ending in calendar
years 2003 through 2010.
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10.
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What are my options if my account involves passive foreign
investment company (PFIC) issues?
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To date, a significant number of cases submitted under the 2009
OVDP involve PFIC investments. A lack of historical information on the cost
basis and holding period of many PFIC investments makes it difficult for
taxpayers to prepare statutory PFIC computations and for the Service to
verify them. As a result, resolution of voluntary disclosure cases could be
unduly delayed. Therefore, for purposes of this initiative, the Service is
offering taxpayers an alternative to the statutory PFIC computation that will
resolve PFIC issues on a basis that is consistent with the Mark to Market
(MTM) methodology authorized in Internal Revenue Code § 1296 but will not
require complete reconstruction of historical data.
The terms of this alternative resolution are: • If elected, the alternative resolution will apply to all PFIC investments in cases that have been accepted into this initiative. The initial MTM computation of gain or loss under this methodology will be for the first year of the 2011 OVDI application, but could be made after 2003 depending on when the first PFIC investment was made. Generally, the first year of the 2011 OVDI application will be for the calendar year ending December 31, 2003. This will require a determination of the basis for every PFIC investment, which should be agreed between the taxpayer and the Service based on the best available evidence. • A tax rate of 20% will be applied to the MTM gain(s), MTM net gain(s) and gains from all PFIC dispositions during the 2011 OVDI period, in lieu of the rate contained in IRC § 1291(a)(1)(B) for the amount allocable to the current year and IRC §1291(c)(2) for the deferred tax amount(s) allocable to any other taxable year. • A rate of 7% of the tax computed for PFIC investments marked to market in the first year of the 2011 OVDI application will be added to the tax for that year, in lieu of the interest charge mechanism described in IRC §§ 1291(c) and 1296(j). • MTM losses will be limited to unreversed inclusions (generally, previously reported MTM gains less allowed MTM losses) on an investment-by-investment basis in the same manner as IRC § 1296. During the 2011 OVDI period, these MTM losses will be treated as ordinary losses (IRC 1296(c)(1)(B)) and the tax benefit is limited to the tax rate applicable to the MTM gains derived during the 2011 OVDI period (20%). MTM and/or disposition losses in any subsequent year on PFIC assets with basis that was adjusted upward as a result of the alternate resolution in voluntary disclosure years, will be treated as capital losses. Any unreversed inclusions at the end of the 2011 OVDI period will be reduced to zero and the MTM method will be applied to all subsequent years in accordance with IRC § 1296 as if the taxpayer had acquired the PFIC stock on the last day of the last year of the 2011 OVDI period at its MTM value and made an IRC § 1296 election for the first year beginning after the 2011 OVDI period. Thus, any subsequent year losses on disposition of PFIC stock assets in excess of unreversed inclusions arising after the end of the 2011 OVDI period will be treated as capital losses. • Regular and Alternative Minimum Tax are both to be computed without the PFIC dispositions or MTM gains and losses. The tax from the PFIC transactions (20% plus the 7% for 2003, if applicable) is added to (or subtracted from) the applicable total tax (either regular or AMT, whichever is higher). The tax and interest (i.e., the 7% for the first year of the 2011 OVDI) computed under the 2011 OVDI alternative MTM can be added to the applicable total tax (either regular or AMT, whichever is higher) and placed on the amended return in the margin, with a supporting schedule. • Underpayment interest and penalties on the deficiency are computed in accordance with the Internal Revenue Code and the terms of the 2011 OVDI. • For any PFIC investment retained beyond December 31, 2010, the taxpayer must continue using the MTM method, but will apply the normal statutory rules of section 1296 as well as the provisions of IRC §§ 1291-1298, as applicable. Before electing the alternative PFIC resolution, taxpayers with PFIC investments should consult their tax advisors to ensure that the issue is material in their cases and that the alternative is in fact preferable to the statutory computation in their situation. If the taxpayer does not elect to use the alternative PFIC computation, the PFIC provisions of §§ 1291-1298 apply. |
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11.
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What happens if I fail to make a voluntary disclosure by the
deadline?
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Although the terms of this initiative are available only to
taxpayers who complete the voluntary disclosure process on or before
September 9, 2011, Criminal Investigation's Voluntary Disclosure Practice
remains available to taxpayers who wish to disclose voluntarily their tax
violations after that date. However, these taxpayers will not be eligible for
the special civil terms of this initiative and will be liable for all
applicable civil penalties, including the willful FBAR penalty. In addition,
the civil resolution of their cases may extend to tax years prior to 2003.
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ELIGIBILITY FOR THIS INITIATIVE
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12.
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Who is eligible to make a voluntary disclosure under this
initiative?
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Taxpayers who have undisclosed offshore accounts or assets are
eligible to apply for IRS Criminal Investigation's Voluntary Disclosure
Practice and the 2011 OVDI penalty regime for tax years 2003 through 2010.
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13.
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Are entities, such as corporations, partnerships and trusts
eligible to make voluntary disclosures?
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Yes, entities are eligible to participate in the 2011 OVDI.
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14.
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I'm currently under examination. Can I come in under voluntary
disclosure?
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No. If the IRS has initiated a civil examination, regardless of
whether it relates to undisclosed foreign accounts or undisclosed foreign
entities, the taxpayer will not be eligible to come in under the 2011 OVDI.
Taxpayers under criminal investigation by CI are also ineligible. The
taxpayer or the taxpayer's representative should discuss the offshore
accounts with the agent.
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15.
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What if the taxpayer has already filed amended returns reporting
the additional unreported income, without making a voluntary disclosure (i.e.
quiet disclosure)?
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The IRS is aware that some taxpayers have attempted so-called “quiet”
disclosures by filing amended returns and paying any related tax and interest
for previously unreported offshore income without otherwise notifying the
IRS. Taxpayers who have already made “quiet” disclosures are eligible to take
advantage of the penalty framework applicable to this initiative by
submitting an application, along with copies of their previously filed returns
(original and amended) to the IRS's Voluntary Disclosure Coordinator (see FAQ
24) by September 9, 2011.
Taxpayers are strongly encouraged to come forward under the 2011 OVDI to make timely, accurate, and complete disclosures. Those taxpayers making “quiet” disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years. |
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16.
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Some taxpayers have made quiet disclosures by filing amended
returns. Will the IRS audit these taxpayers? If so, will they be eligible for
the 25 percent offshore penalty? Is the IRS really going to prosecute someone
who filed an amended return and correctly reported all their income?
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The IRS is reviewing amended returns and could select any
amended return for examination. The IRS has identified, and will continue to
identify, amended tax returns reporting increases in income. The IRS will
closely review these returns to determine whether enforcement action is
appropriate. If a return is selected for examination, the 25 percent offshore
penalty would not be available. When criminal behavior is evident and the
disclosure does not meet the requirements of a voluntary disclosure under IRM
9.5.11.9, the IRS may recommend criminal prosecution to the Department of
Justice.
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17.
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I have properly reported all my taxable income but I only
recently learned that I should have been filing FBARs in prior years to
report my personal foreign bank account or to report the fact that I have
signature authority over bank accounts owned by my employer. May I come
forward under this new initiative to correct this?
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The purpose for the voluntary disclosure practice is to provide
a way for taxpayers who did not report taxable income in the past to come
forward voluntarily and resolve their tax matters. Thus, if you reported and
paid tax on all taxable income but did not file FBARs, do not use the
voluntary disclosure process.
For taxpayers who reported and paid tax on all their taxable income for prior years but did not file FBARs, you should file the delinquent FBAR reports according to the instructions (send to Department of Treasury, Post Office Box 32621, Detroit, MI 48232-0621) and attach a statement explaining why the reports are filed late. The IRS will not impose a penalty for the failure to file the delinquent FBARs if there are no underreported tax liabilities and the FBARs are filed by September 9, 2011. However, FBARs for 2010 are due on June 30, 2011 and must be filed by that date. |
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18.
|
Question 17 states that a taxpayer who only failed to file an
FBAR should not use this process. What about a taxpayer who only has
delinquent Form 5471s or Form 3520s but no tax due? Does that taxpayer fall
outside this voluntary disclosure process?
|
A taxpayer who has failed to file tax information returns, such
as Form 5471 for controlled foreign corporations (CFCs) or Form 3520 for
foreign trusts but who has reported and paid tax on all their taxable income
with respect to all transactions related to the CFCs or foreign trusts,
should file delinquent information returns with the appropriate service
center according to the instructions for the form and attach a statement
explaining why the information returns are filed late. (The Form 5471 should
be submitted with an amended return showing no change to income or tax
liability.)
The IRS will not impose a penalty for the failure to file the information returns if there are no underreported tax liabilities and the information returns are filed by September 9, 2011. |
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19.
|
Is a taxpayer who previously sought relief under the IRS's
traditional Voluntary Disclosure Practice or who made a quiet disclosure
before the 2011 OVDI was announced eligible for the terms of the 2011 OVDI?
|
A taxpayer who made a voluntary disclosure (other than a
voluntary disclosure under the 2009 OVDP) or made a quiet disclosure is
eligible to apply for the 2011 OVDI. Participants in the 2009 OVDP are not
eligible.
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20.
|
If I don't have the ability to full pay can I still participate
in this initiative?
|
Yes. The terms of this initiative require the taxpayer to pay
the tax, interest, and accuracy-related penalty, and, if applicable the
failure to file and failure to pay penalties with their submission. However,
it is possible for a taxpayer who is unable to make full payment of these amounts
to request the IRS to consider other payment arrangements (see FAQ 25).
The burden will be on the taxpayer to establish inability to pay, to the satisfaction of the IRS, based on full disclosure of all assets and income sources, domestic and offshore, under the taxpayer's control. Assuming that the IRS determines that the inability to fully pay is genuine, the taxpayer must work out other financial arrangements, acceptable to the IRS, to resolve all outstanding liabilities, in order to be entitled to the penalty relief under this initiative. |
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21.
|
If the IRS has served a John Doe summons seeking information
that may identify a taxpayer as holding an undisclosed foreign account or
undisclosed foreign entity, does that make the taxpayer ineligible to make a
voluntary disclosure under this initiative?
|
No. The mere fact that the Service served a John Doe summons
does not make every member of the John Doe class ineligible to participate.
However, once the Service obtains information under a John Doe summons that
provides evidence of a specific taxpayer's noncompliance with the tax laws,
that particular taxpayer may become ineligible. For this reason, a taxpayer
concerned that a party served with a John Doe summons will provide
information about him to the Service should apply to make a voluntary
disclosure as soon as possible.
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2011 OVDI PROCESS
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22.
|
Can my representative talk to the IRS without revealing my
identity?
|
Yes, but hypothetical situations present a potential for
misunderstanding that exists when there is no assurance that the hypothetical
contains all relevant facts. In addition, posing a situation as a
hypothetical does not satisfy the requirements for making a voluntary
disclosure. If the IRS receives information relating specifically to the
taxpayer's undisclosed foreign accounts or undisclosed foreign entities while
the hypothetical question is pending, the taxpayer may become ineligible to
make a voluntary disclosure.
If practitioners have questions about the terms of the voluntary disclosure program, they should contact the IRS OVDI Hotline at (267) 941-0020, visithttp://www.irs.gov/, or contact their nearest CI office with questions. |
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23.
|
How do I request pre-clearance before I submit my offshore
voluntary disclosure?
|
For the 2011 OVDI pre-clearance may be requested as
follows:
1. Taxpayers or representatives may fax to the Criminal Investigation Lead Development Center (LDC) identifying information (name, date of birth, social security number and address) and an executed power of attorney (if represented) to (215) 861-3050 to request pre-clearance before making an offshore voluntary disclosure. 2. Criminal Investigation will then notify taxpayers or their representatives via fax whether or not they are cleared to make an offshore voluntary disclosure. 3. Taxpayers deemed cleared should follow the steps outlined below (FAQ 24) within 30 days from receipt of the fax notification to make an offshore voluntary disclosure. Pre-clearance does not guarantee a taxpayer acceptance into the 2011 OVDI. Taxpayers must truthfully, timely, and completely comply with all provisions of the offshore voluntary disclosure program. Taxpayers or representatives with questions regarding pre-clearance can call (215) 861-3759 or contact their nearest CI office. For all other offshore voluntary disclosure questions call the IRS OVDI Hotline at (267) 941-0020. |
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24.
|
How do I make an offshore voluntary disclosure and where should
I submit my offshore voluntary disclosure to determine whether I am preliminarily
accepted under this initiative?
|
For the 2011 OVDI, an offshore voluntary disclosure is submitted
as follows:
1. Taxpayers or their representatives should mail theirOffshore Voluntary Disclosures Letter to the following address: Offshore Voluntary Disclosure Coordinator 600 Arch Street, Room 6404 Philadelphia, PA 19106 2. Criminal Investigation will review the Offshore Voluntary Disclosures Letter received and notify taxpayers or representatives by mail whether their offshore voluntary disclosures have been preliminarily accepted or declined. It is intended that Criminal Investigation will complete its work within 30 days of receipt of a complete Offshore Voluntary Disclosures Letter. All other voluntary disclosures that are not covered under this initiative should follow the instructions. |
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24.1
|
What if I cannot complete my Offshore Voluntary Disclosure
Letter and send it to CI on or before the deadline?
|
In order to participate and be eligible for the 2011 OVDI, a
taxpayer must submit their name, address, date of birth, and social security
number and should submit as much of the other information on the 3 page
Offshore Voluntary Disclosures Letter as possible on or before September 9,
2011. An incomplete Offshore Voluntary Disclosures Letter must be amended
(with the addition of any missing information) and submitted as quickly as
possible.
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25.
|
After I am notified by CI that my disclosure is timely, what
other information will I have to provide?
|
The letter from CI will instruct the taxpayer or their
representative to submit the full voluntary disclosure package of information
to the Austin Campus:
Internal Revenue Service 3651 S. I H 35 Stop 4301 AUSC Austin, TX 78741 ATTN: 2011 Offshore Voluntary Disclosure Initiative This package must include: • Copies of previously filed original (and, if applicable, previously filed amended) federal income tax returns for tax years covered by the voluntary disclosure; • Complete and accurate amended federal income tax returns (for individuals, Form 1040X, or original Form 1040 if delinquent) for all tax years covered by the voluntary disclosure, with applicable schedules detailing the amount and type of previously unreported income from the account or entity (e.g., Schedule B for interest and dividends, Schedule D for capital gains and losses, Schedule E for income from partnerships, S corporations, estates or trusts). • A completed Foreign Account or Asset Statement for each previously undisclosed foreign account or asset during the voluntary disclosure period (available at 2011 Offshore Voluntary Disclosure Initiative Documents and Forms). • For those applicants disclosing offshore financial accounts with an aggregate highest account balance in any year of $1 million or more, a completed Foreign Financial Institution Statement for each foreign financial institution with which the taxpayer had undisclosed accounts or transactions during the voluntary disclosure period (available at 2011 Offshore Voluntary Disclosure Initiative Documents and Forms); • Properly completed and signed Taxpayer Account Summary With Penalty Calculation (available at 2011 Offshore Voluntary Disclosure Initiative Documents and Forms); • A check payable to the Department of Treasury in the total amount of tax, interest, accuracy-related penalty, and, if applicable, the failure to file and failure to pay penalties, for the voluntary disclosure period. If you cannot pay the total amount of tax, interest, and penalties as described above, submit your proposed payment arrangement and a completed Collection Information Statement ( Form 433-A, Collection Information Statement for Wage Earners and Self-employed Individuals, or Form 433-B, Collection Information Statement for Businesses, as appropriate) (see FAQ 20). • For those applicants disclosing offshore financial accounts with an aggregate highest account balance in any year of $500,000 or more, copies of offshore financial account statements reflecting all account activity for each of the tax years covered by your voluntary disclosure. For those applicants disclosing offshore financial accounts with an aggregate highest account balance of less than $500,000, copies of offshore financial account statements reflecting all account activity for each of the tax years covered by your voluntary disclosure must be readily available upon request. • Properly completed and signed agreements to extend the period of time to assess tax (including tax penalties)and to assess FBAR penalties. Please see the Submission Requirements on the IRS's website, 2011 Offshore Voluntary Disclosure Initiative Documents and Forms, for a complete description of the forms and other information that must be submitted. You may also be contacted by an examiner with a request for specific additional information if needed to process your voluntary disclosure. The examiner will certify that your voluntary disclosure is correct, accurate, and complete by reviewing your records along with your amended or delinquent income tax returns. The examiner will also verify the tax, interest, and civil penalties you owe. A full and complete submission is required for acceptance into the program. |
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25.1
|
What if I cannot make a complete submission on or before the
deadline?
|
A taxpayer may request an extension of the deadline to complete
his or her submission. Taxpayers requesting extensions must submit their
name, address, date of birth, and social security number and should submit as
much of the information described in FAQ 25 as possible with their written
request for extension.
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. Requests for extensions must be made in writing and sent to the Austin Campus on or before September 9, 2011: Internal Revenue Service 3651 S. I H 35 Stop 4301 AUSC Austin, TX 78741 ATTN: 2011 Offshore Voluntary Disclosure Initiative |
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26.
|
Who will process my voluntary disclosure after I have submitted
the information described in FAQ 25?
|
After you send in your full and complete submission as described
in FAQ 25, your case will be assigned to a civil examiner to complete the
certification of your tax returns for accuracy, completeness and correctness.
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27.
|
Will my voluntary disclosure be subject to an examination?
|
Normally, no examination will be conducted with respect to a
voluntary disclosure made under this initiative, although the Service
reserves the right to conduct an examination. The normal process is to assign
the voluntary disclosure to an examiner to certify the accuracy and
completeness of the voluntary disclosure. The certification process is less
formal than an examination and does not carry with it all the rights and
legal consequences of an examination. For example, the examiner will not send
the usual taxpayer notices, the certification process will not constitute a “second
examination” if one or more years in the voluntary disclosure has previously
been examined, and the taxpayer will not have appeal rights with respect to
the Service's determination. However, the examiner has the right to ask any
relevant questions, request any relevant documents, and even make third party
contacts, if necessary to certify the accuracy of the amended returns,
without converting the certification to an examination.
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28.
|
How long should the process take before it is completed?
|
Because every case is different, there is no way to predict how
long the process will take for you. However, the IRS has taken certain steps
to improve our efficiency in processing cases. Moreover, there are certain
steps you can take to expedite matters. If you have not already done so, you
should have delinquent or amended tax returns prepared now because they must
be submitted with your package (see FAQ25). You should also start gathering
all of your foreign account statements and other documentation for all of the
years covered by your voluntary disclosure. You may view a description of the
submission requirements necessary to process your voluntary disclosure
at http://www.irs.gov/. Once the examiner has all the information
needed to certify your voluntary disclosure, most cases should be completed
expeditiously. The 2011 OVDI will operate on a first-come, first-served
basis. As a result, complete submissions coming in before the final deadline
are likely to close much faster.
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29.
|
My offshore assets were held in the name of a foreign entity
that I controlled. However, the sole purpose of the entity was to conceal my
ownership of the assets, and I intend to dissolve the entity now that I am
making a voluntary disclosure. Do I still have to file the delinquent
information returns for the entity?
|
A taxpayer who holds assets through a foreign entity he or she
controls, such as a corporation or a trust, is required to file information
returns for that entity (e.g., Form 5471 for a foreign corporation and Forms
3520 and 3520-A for a foreign trust), regardless of whether the taxpayer
honored the form of the entity in his or her dealings with the assets.
However, in cases where the taxpayer certifies under penalty of perjury that
the entity had no purpose other than to conceal the taxpayer's ownership of
assets, and where the taxpayer dissolves the entity, the Service may agree to
waive the requirement that delinquent information returns be filed if it
concludes it is in the Service's interest to do so. Taxpayers wishing to
request the Service to disregard a foreign entity should submit a Statement
on Dissolved Entities.
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30.
|
What should I do if I am having difficulty obtaining my records
from overseas?
|
If you are having difficulty, speak with your agent or if your
case is not yet assigned, contact the IRS OVDI Hotline at (267) 941-0020. Our
experience with offshore cases in recent years has shown that taxpayers are ultimately
successful in retrieving copies of statements and other records from foreign
banks.
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CALCULATING THE OFFSHORE PENALTY
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31.
|
When determining the highest amount in each undisclosed foreign
account for each year or the highest asset balance of all undisclosed foreign
entities for each year, what exchange rate should be used?
|
Convert foreign currency by using the foreign currency exchange
rate at the end of the year. In valuing currency of a country that uses
multiple exchange rates, use the rate that would apply if the currency in the
account were converted into United States dollars at the close of the
calendar year. Each account is to be valued separately.
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32.
|
If a taxpayer's violation includes unreported individual foreign
accounts and business accounts (for an active business), does the 25 percent
offshore penalty include the business accounts?
|
Yes. Assuming that there is unreported income with respect to
all the accounts, they all will be included in the penalty base. No
distinction is drawn based on whether the account is a business account or a
savings or investment account.
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||
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33.
|
Is there a de minimis unreported income exception to the 25
percent penalty?
|
No. No amount of unreported income is considered de minimis for
purposes of determining whether there has been tax non-compliance with
respect to an account or asset and whether the account or asset should be
included in the base for the 25 percent penalty.
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||
|
34.
|
If the look back period is 2003-2010, what does the taxpayer do
if the taxpayer held foreign real estate, sold it in 2002, and did not report
the gain on his 2002 return? Does the taxpayer compute the 25 percent on the
highest aggregate balance in 2003-2010? What, if anything, does IRS expect
the taxpayer to do with respect to 2002?
|
Gain realized on a foreign transaction occurring before 2003
does not need to be included as part of the voluntary disclosure. If the
proceeds of the transaction were repatriated and were not offshore after
December 31, 2002, they will not be included in the base for the 25 percent
offshore penalty. On the other hand, if the proceeds remained offshore after
December 31, 2002, they will be included in the base for the penalty.
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||
|
35.
|
What kinds of assets does the 25 percent offshore penalty apply
to?
|
The offshore penalty is intended to apply to all of the
taxpayer's offshore holdings that are related in any way to tax
non-compliance, regardless of the form of the taxpayer's ownership or the
character of the asset. The penalty applies to all assets directly owned by
the taxpayer, including financial accounts holding cash, securities or other
custodial assets; tangible assets such as real estate or art; and intangible
assets such as patents or stock or other interests in a U.S. or foreign
business. If such assets are indirectly held or controlled by the taxpayer
through an entity, the penalty may be applied to the taxpayer's interest in
the entity or, if the Service determines that the entity is an alter ego or
nominee of the taxpayer, to the taxpayer's interest in the underlying assets.
Tax noncompliance includes failure to report income from the assets, as well
as failure to pay U.S. tax that was due with respect to the funds used to
acquire the asset. See FAQ 52, category 3, for a limited exception to this
rule.
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36.
|
A taxpayer owns valuable land and artwork located in a foreign
jurisdiction. This property produces no income and there were no reporting
requirements regarding this property. Must the taxpayer report the land and
artwork and pay a 25 percent penalty? What if the property produced income
that the taxpayer did not report?
|
The answer to the first question depends on whether the
non-income producing assets were acquired with funds improperly non-taxed.
The offshore penalty is intended to apply to offshore assets that are related
to tax non-compliance. Thus, if offshore assets were acquired with funds that
were subject to U.S. tax but on which no such tax was paid, the offshore
penalty would apply regardless of whether the assets are producing current
income. Assuming that the assets were acquired with after tax funds or from
funds that were not subject to U.S. taxation, if the assets have not yet
produced any income, there has been no U.S. taxable event and no reporting
obligation to disclose. The taxpayer will be required to report any current
income from the property or gain from its sale or other disposition at such
time in the future as the income is realized. Because there has not been tax
noncompliance, the 25 percent offshore penalty would not apply to those
assets.
In answer to the second question, if the assets produced income subject to U.S. tax during 2003-2010 which was not reported, the assets will be included in the penalty computation regardless of the source of the funds used to acquire the assets. If the foreign assets were held in the name of an entity such as a trust or corporation, there would also have been an information return filing obligation that may need to be disclosed. See FAQ 5. |
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|
37.
|
If a taxpayer transferred funds from one unreported foreign
account to another between 2003 and 2010, will he have to pay a 25 percent
offshore penalty on both accounts?
|
No. If the taxpayer can establish that funds were transferred
from one account to another, any duplication will be removed before
calculating the 25 percent penalty. However, the burden will be on the
taxpayer to establish the extent of the duplication.
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||
|
38.
|
If, in addition to other noncompliance, a taxpayer has failed to
file an FBAR to report an account over which the taxpayer has signature
authority but no beneficial interest (e.g., an account owned by his
employer), will that foreign account be included in the base for calculating
the taxpayer's 25 percent offshore penalty?
|
No. The account the taxpayer has mere signature authority over
will be treated as unrelated to the tax noncompliance the taxpayer is
voluntarily disclosing. The taxpayer may cure the FBAR delinquency for the
account the taxpayer does not own by filing the FBAR with an explanatory
statement by September 9, 2011. The answer might be different if: (1) the
account over which the taxpayer has signature authority is held in the name
of a related person, such as a family member or a corporation controlled by
the taxpayer; (2) the account is held in the name of a foreign corporation or
trust for which the taxpayer had a Title 26 reporting obligation; or (3) the
account was related in some other way to the taxpayer's tax noncompliance. In
these cases, if the taxpayer is determined to have a direct or indirect
beneficial interest in the account(s), the taxpayer will be liable for the 25
percent offshore penalty if there is unreported income on the account. On the
other hand, if there is no unreported income with respect to the account, no
penalty will be imposed.
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||
|
39.
|
If parents have a jointly owned foreign account on which they
have made their children signatories, the children have an FBAR filing
requirement but no income. Should the children just file delinquent FBARs and
have the parents submit a voluntary disclosure? Will both parents be
penalized 25 percent each? Will each parent have a 25 percent penalty on 50
percent of the balance?
|
For those signatories with no ownership interest in the account,
such as the children in these facts, they should file delinquent FBARs as
previously described in FAQ 17. As for the parents, only one 25 percent
offshore penalty will be applied with respect to voluntary disclosures
relating to the same account. In the example, the parents will be jointly
required to pay a single 25 percent penalty on the account. This can be
through one parent paying the total penalty or through each paying a portion,
at the taxpayers' option. However, any joint account owner who does not make
a voluntary disclosure may be examined and subject to all appropriate
penalties.
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|
||
|
40.
|
If multiple taxpayers are co-owners of an offshore account, who
will be liable for the offshore penalty?
|
In the case of co-owners, each taxpayer who makes a voluntary
disclosure will be liable for the penalty on his percentage of the highest
aggregate balance in the account. His voluntary disclosure is effective as to
his tax liability only. It does not cover the other co-owners. The IRS may
examine any co-owner who does not make a voluntary disclosure. Co-owners
examined by the IRS will be subject to all appropriate penalties.
|
|
|
||
|
41.
|
If there are multiple individuals with signature authority over
a trust account, does everyone involved need to file delinquent FBARs? If so,
could everyone be subject to a 25 percent offshore penalty?
|
Only one 25 percent offshore penalty will be applied with
respect to voluntary disclosures relating to the same account. The penalty
may be allocated among the taxpayers with beneficial ownership making the
voluntary disclosures in any way they choose. The reporting requirements for
filing an FBAR, however, do not change. Therefore, every individual who is
required to file an FBAR must file one.
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|
||
|
STATUTE OF LIMITATIONS
|
||
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|
||
|
42.
|
How can the IRS propose adjustments to tax for more than three
years without either an agreement from the taxpayer or a statutory exception
to the normal three-year statute of limitations for making those adjustments?
|
Agreeing to assessment of tax and penalties for all voluntary
disclosure years is part of the resolution offered by the IRS for resolving
offshore voluntary disclosures. The taxpayer must agree to assessment of the
liabilities for those years in order to get the benefit of the reduced
penalty framework. If the taxpayer does not agree to the tax, interest and
penalty proposed by the voluntary disclosure examiner, the case will be
referred to the field for a complete examination of all issues. In that
examination, normal statute of limitations rules will apply. If no exception
to the normal three-year statute applies, the IRS will only be able to assess
tax, penalty and interest for three years. However, if the period of
limitations was open because, for example, the IRS can prove a substantial
omission of gross income, six years of liability may be assessed. Similarly,
if there was a failure to file certain information returns, such as Form 3520
or Form 5471, the statute of limitations will not have begun to run. If the
IRS can prove fraud, there is no statute of limitations for assessing tax. In
addition, the statute of limitations for asserting FBAR penalties is six
years from the date of the violation, which would be the date that an unfiled
FBAR was due to have been filed. 31 U.S.C. § 5321(b)(1).
|
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|
||
|
43.
|
Will I be required to complete and sign agreements to extend the
period of time to assess tax (including tax penalties) and to assess FBAR
penalties for any years that are otherwise set to expire while my application
is being processed by the IRS?
|
Yes. Properly completed and signed agreements to extend the
period of time to assess tax (including tax penalties) and to assess FBAR
penalties are required to be submitted with your package (see FAQ 25).
|
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|
||
|
FBAR QUESTIONS
|
||
|
|
||
|
44.
|
If I had an FBAR reporting obligation for years covered by the
voluntary disclosure, what version of the Form TD F 90-22.1 should I use to
report my interests in foreign accounts?
|
Taxpayers should use the most current version of Form TD
F 90-22.1, for filing delinquent FBARs to report foreign accounts
maintained in prior years. At this time, the most current version is the one
that was revised in October 2008. The taxpayer may, however, rely on the
instructions for the prior version of the form (revised in July 2000) for
purposes of determining who must file to report foreign accounts maintained
during the 2009 and prior calendar years. Taxpayers may rely on guidance that
was applicable for prior FBAR filing seasons (e.g., IRS Announcement
2010-16 or IRS Notice 2010-23) in determining their FBAR
reporting obligations.
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|
|
||
|
45.
|
A taxpayer has two offshore accounts. No FBARs were filed. The
taxpayer reported all income from one account but not the other.
Mechanically, how does the taxpayer report this? Does the taxpayer report
both accounts as a voluntary disclosure or bifurcate it into a delinquent
FBAR filing for the reported account and a voluntary disclosure for the
unreported account?
|
Because the annual FBAR requirement is to file a single report
reporting all foreign accounts meeting the reporting requirement, it is not
possible to bifurcate the corrected filing. The taxpayer should make a
voluntary disclosure for the omitted income and include the delinquent FBARs
with respect to both accounts. The account with no income tax issue is
unrelated to the taxpayer's tax noncompliance, so no penalty will be imposed
with respect to that account.
|
|
|
||
|
46.
|
If a taxpayer is uncertain about whether he is required to file
an FBAR with respect to a particular foreign account, how can the taxpayer
get help with this question?
|
Help with questions about FBAR filing requirements is available
on the FBAR Hotline at 1-800-800-2877. Select option 2. You can also submit
written questions about the FBAR rules by e-mail addressed toFBARQuestions@irs.gov.
The instructions to the FBAR form are available at http://www.irs.gov/.
Do not call the IRS OVDI Hotline with questions about whether you have an
FBAR filing requirement. The purpose of the Voluntary Disclosure Hotline is
to answer questions about how to make voluntary disclosures and what
penalties apply, assuming a taxpayer was required to file.
|
|
|
||
|
TAXPAYER REPRESENTATIVES
|
||
|
|
||
|
47.
|
I have a client who may be eligible to make a voluntary
disclosure. What are my responsibilities to my client under Circular 230?
|
The IRS anticipates that taxpayers will seek qualified tax and
legal advice and representation in connection with considering and making a
voluntary disclosure. If a taxpayer seeks the advice of a tax practitioner,
the practitioner must exercise due diligence in determining the correctness
of any oral or written representations made to the client about the program
and the implications for that taxpayer of going forward. If the taxpayer
decides to proceed with the disclosure, the practitioner must exercise due
diligence in determining the correctness of any oral or written
representations that the practitioner makes during the representation to the
Department of the Treasury; and must avoid giving, or participating in
giving, false or misleading information to the Department of the Treasury or
giving a false or misleading opinion to the taxpayer. If the taxpayer decides
not to make the voluntary disclosure despite the taxpayer's noncompliance
with United States tax laws, Circular 230 requires the practitioner to advise
the client of the fact of the client's noncompliance and the consequences of
the client's noncompliance. A practitioner whose client declines to make full
disclosure of the existence of, or any taxable income from, a foreign
financial account during a taxable year, may not prepare the client's income
tax return for that year without being in violation of Circular 230.
|
|
|
||
|
48.
|
Are there special considerations for completing Form 2848, Power
of Attorney and Declaration of Representative?
|
Yes. In addition to being authorized to represent the taxpayer
for tax years 2003 through 2010, the power of attorney must specifically
authorize you to represent the taxpayer for income tax, civil penalties and
FBARs. A sample power of attorney can be found athttp://www.irs.gov/.
|
|
|
||
|
CASE RESOLUTION
|
||
|
|
||
|
49.
|
If the taxpayer and the IRS cannot agree to the terms of the
2011 OVDI closing agreement, will mediation with Appeals be an option with
respect to the terms of the closing agreement?
|
No. The penalty framework and the agreement to limit tax
exposure to years 2003 through 2010 are package terms under the 2011 OVDI. If
any part of the offshore penalty is unacceptable to the taxpayer, the case
will be examined and all applicable penalties will be imposed (see FAQ 51).
After a full examination, any tax and penalties imposed by the Service on
examination may be appealed, but the Service's decision on the terms of the
2011 OVDI closing agreement may not.
|
|
|
||
|
50.
|
Will examiners have any discretion to settle cases?
|
No. Voluntary disclosure examiners do not have discretion to
settle cases for amounts less than what is properly due and owing. However,
because the 25 percent offshore penalty is a proxy for the FBAR penalty,
other penalties imposed under the Internal Revenue Code, and potential
liabilities for years prior to 2003, there may be cases where a taxpayer
making a voluntary disclosure would owe less if the special offshore
initiative did not exist. Under no circumstances will taxpayers be required
to pay a penalty greater than what they would otherwise be liable for under
the maximum penalties imposed under existing statutes. For example, if a
taxpayer had $100,000 in an offshore bank account in only one year and
foreign income-producing real estate with a fair market value of $1,000,000,
only the bank account would be subject to the FBAR penalty. Consequently, the
maximum FBAR penalty would only be $100,000 (that is, the greater of $100,000
or 50% of the amount in the foreign account), which is substantially less
than the offshore penalty of $275,000 (25% of $1,100,000). If this FBAR
penalty, plus tax, interest and all other applicable penalties, are less than
what is due under this offshore initiative, the taxpayer will only pay the
lesser amount.
Examiners will compare the amount due under this offshore initiative to the tax, interest, and applicable penalties (at their maximum levels and without regard to issues relating to reasonable cause, willfulness, mitigation factors, or other circumstances that may reduce liability) for all open years that a taxpayer would owe in the absence of the 2011 OVDI penalty regime. The taxpayer will pay the lesser amount. If the taxpayer disagrees with the result, the taxpayer may request that the case be referred for an examination of all relevant years and issues (see FAQ 51). |
|
|
||
|
51.
|
If, after making a voluntary disclosure, a taxpayer disagrees
with the application of the offshore penalty, what can the taxpayer do?
|
If the offshore penalty is unacceptable to a taxpayer, that
taxpayer must indicate in writing the decision to withdraw from or opt out of
the program. Once made, this election is irrevocable. An opt out is an
election made by a taxpayer to have his or her case handled under the
standard audit process. It should be recognized that in a given case, the opt
out option may reflect a preferred approach. That is, there may be instances
in which the results under the applicable voluntary disclosure program appear
too severe given the facts of the case. There will be other instances where
this is less clear. In the latter cases, the Service will look to ensure that
the best interests of the Service and the integrity of the voluntary
disclosure program remain intact. In these cases, it is expected that full
scope examinations will occur if opt out is initiated. It is expected that opt
out will be appropriate for a discrete minority of cases. Moreover, to the
extent that issues are found upon a full scope examination that were not
disclosed by the taxpayer, those issues may be the subject of review by
Criminal Investigation. In either case, opting out is at the sole discretion
of the taxpayer and the taxpayer should not be treated in a negative fashion
merely because he or she chooses to opt out.
The specific procedures for opting out are set forth in a separate guide titled Opt Out and Removal Guide for the 2009 OVDP and 2011 OVDI. The guide is posted to the website. Taxpayers are reminded, that even after opting out of the Service's civil settlement structure, they remain within Criminal Investigation's Voluntary Disclosure Practice. Therefore, taxpayers are still required to cooperate fully with the examiner by providing all requested information and records and must still pay or make arrangements to pay the tax, interest, and penalties they are ultimately determined to owe. If a taxpayer does not cooperate and make payment arrangements, or if after examination, issues exist that were not disclosed prior to opt out, the case may be referred back to Criminal Investigation. |
|
|
||
|
51.1
|
Under what circumstances might a taxpayer consider opting out of
the civil settlement structure of the 2011 OVDI?
|
The following scenarios are provided to illustrate the effect of
a taxpayer opting out of the civil settlement structure. Opting out of the
civil settlement structure does not affect the status of a taxpayer's
voluntary disclosure under Criminal Investigation's Voluntary Disclosure
Practice, so long as the taxpayer is fully cooperative in the examination
process, by providing all requested foreign records and submitting to
interviews, as requested, and as long as no new issues are uncovered that
were previously not disclosed. The facts of each example were chosen to
illustrate particular issues and do not represent a full analysis of a
taxpayer's particular situation. Consequently, they may not be relied upon in
dealing with any taxpayer's actual case. For all of the following examples,
assume a 35% tax rate on all unreported income.
Example 1 — Unreported Income But No Tax Deficiency The taxpayer, a U.S. citizen who worked and resided in Country A, had a brokerage account in Country A that he opened in 1999. The account had a high balance of $2 million and generated income of $150,000 each year. The taxpayer did not report any of the income on his U.S. return because he mistakenly assumed he only had to report it on a Country A tax return. The taxpayer's amended Form 1040 returns showed that, after applying the foreign tax credit for taxes paid to the government of Country A, he had no tax deficiency with respect to the unreported income. Because the taxpayer had unreported income, he does not qualify for FAQ 17. In addition, assume the taxpayer does not otherwise qualify for a reduced penalty under FAQ 52 or 53. The Offshore Penalty under 2011 OVDI is $500,000 (i.e., 25% of $2 million), even though there was no tax owed to the U.S. Government and no other indication of wrongdoing. If the taxpayer elected to opt out and, upon examination, IRS determined that the FBAR violation was not willful, he would be subject to an FBAR penalty of up to $10,000 per year ($60,000 total for six years). If IRS determines that the violation was due to reasonable cause (for example, the taxpayer reasonably acted on the written advice of an independent legal advisor after having disclosed the account to the advisor), the taxpayer would be subject to no FBAR penalty. The penalty for a nonwillful failure to file an FBAR would apply with respect to FBARs that were due on or after June 30, 2005. For this example, this would include FBARs that were filed to report foreign financial accounts maintained during calendar years 2004 through 2009. |
|
|
||
|
Civil Settlement Structure
|
Opt out and 6 years nonwillful FBAR penalty
|
|
|
|
||
|
Income Tax Due (not including interest)
|
0
|
0
|
|
|
||
|
20% Accuracy-related penalty
|
0
|
0
|
|
|
||
|
25% Offshore Penalty
|
$500,000
|
0
|
|
|
||
|
FBAR Penalty
|
0
|
$60,000
|
|
|
||
|
Total
|
$500,000
|
$60,000
|
|
|
||
|
Example 2 - Unreported Income and Failure to File FBAR
The taxpayer is a U.S. citizen, who lived abroad in 2007, 2008 and 2009. While living abroad, the taxpayer opened an account in 2007 with a bank located in Country X. Assume that the highest account balance during the three years (2007, 2008 and 2009) was $200,000. The taxpayer filed U.S. income tax returns for all years but only filed an FBAR for 2008 and 2009, not for 2007. The taxpayer was unaware of his FBAR filing obligation until having his return professionally prepared in 2008. The taxpayer failed to report approximately $2,000 of interest income from the account, and, is therefore, unable to simply file a delinquent FBAR for 2007 as provided in FAQ 17. The tax deficiency was $700. In addition, assume the taxpayer does not otherwise qualify for a reduced penalty under FAQ 52 or 53. The Offshore Penalty under 2011 OVDI will be $50,000 (i.e., 25% of $200,000). The taxpayer would also be required to pay the tax deficiency for each year, interest on the deficiency, and the 20% accuracy-related penalty on the deficiency. If the taxpayer elected to opt out, the taxpayer will be subject to tax, penalties, and interest on the unreported income and, if, upon examination, IRS determines that the failure to file the FBAR was not willful, the taxpayer will be subject to a non-willful FBAR penalty of no more than $10,000 for failing to file an FBAR for 2007. If IRS determines that the FBAR violation was due to reasonable cause, then no FBAR penalty will be imposed. |
|
|
|||
|
Civil Settlement Structure
|
Opt out and 1 year nonwillful FBAR penalty
|
Opt out and assume the civil fraud penalty applied
|
|
|
|
|||
|
Income Tax Due (not including interest)
|
$700
|
$700
|
$700
|
|
|
|||
|
20% Accuracy-related penalty
|
$140
|
$140
|
0
|
|
|
|||
|
25% Offshore Penalty
|
$50,000
|
0
|
0
|
|
|
|||
|
Civil Fraud Penalty
|
0
|
0
|
$525
|
|
|
|||
|
FBAR Penalty
|
0
|
$10,000
|
$10,000
|
|
|
|||
|
Total
|
$50,840
|
$10,840
|
$11,225
|
|
|
|||
|
Example 3 - Unreported Controlled Foreign Corporation
The taxpayer, a U.S. citizen who lives in the United States, owns a 100% interest in a foreign corporation that has substantial operations in Country A and a foreign bank account. The foreign corporation is not required to file an FBAR and does not file one. The taxpayer also has signature authority over the foreign bank account. The taxpayer did not file an FBAR to report his financial interest in, or signature authority over, the foreign bank account of the corporation that he controls. The interest income earned on the foreign account was $5,000 for each year. The tax deficiency for each year was $1,750. The balance in the foreign bank account during the calendar years 2003 through 2010 was a constant $1 million. The value of the taxpayer's controlling interest in the foreign corporation is determined to be $100 million (including the value of the $1 million foreign bank account). The taxpayer did not file a Form 5471 to report his interest in the controlled foreign corporation. Instead, he wrongly treated the foreign corporation as a disregarded entity and reported the corporation's income on a Schedule C. The income he reported from the foreign corporation did not include interest income earned on the corporation's foreign bank account. Otherwise, the individual was fully compliant in reporting all other taxable income, including income from the controlled foreign corporation. The statute of limitations for assessing tax and tax penalties with respect to the controlled foreign corporation remained open under IRC § 6501(c)(8) because the Form 5471 was not filed. |
|
|
|||
|
Civil Settlement Structure
|
Opt out and 6 years of the § 6038(a) penalty plus 6 years of the
FBAR nonwillful penalty
|
Assume the civil fraud penalty applied for six years and the
FBAR willful penalty applied for 6 years
|
|
|
|
|||
|
Income Tax Due (not including interest)
|
$14,000
|
$14,000
|
$14,000
|
|
|
|||
|
20% Accuracy-related penalty
|
$2,800
|
$2,800
|
0
|
|
|
|||
|
25% Offshore Penalty
|
$25,000,000
|
0
|
0
|
|
|
|||
|
§ 6038(a) Penalty
|
0
|
$60,000
|
$60,000
|
|
|
|||
|
Civil Fraud Penalty
|
0
|
0
|
$10,500
|
|
|
|||
|
FBAR Penalty
|
0
|
$60,000
|
$3,000,000
|
|
|
|||
|
Total
|
$25,016,800
|
$136,800
|
$3,084,500
|
|
|
|||
|
|
||
|
51.2
|
Under what circumstances might opting out of the civil
settlement structure of the 2011 OVDI be a disadvantage for the
taxpayer?
Total |
The following scenarios are provided to illustrate the effect of
a taxpayer opting out of the civil settlement structure. Opting out of the
civil settlement structure does not affect the status of a taxpayer's
voluntary disclosure under Criminal Investigation's Voluntary Disclosure
Practice, so long as the taxpayer is fully cooperative in the examination
process, by providing all requested foreign records and submitting to
interviews, as requested, and as long as no new issues are uncovered that
were previously not disclosed. The facts of each example were chosen to
illustrate particular issues and do not represent a full analysis of a
taxpayer's particular situation. Consequently, they may not be relied upon in
dealing with any taxpayer's actual case. For all of the following examples,
assume a 35% tax rate on all unreported income.
Example 4 - Large Unreported Gain The taxpayer, a U.S. citizen, opened a checking account in Country A in 2008 with funds upon which U.S. taxes were previously paid. The taxpayer discloses that he had failed to report the sale, in 2008, of an apartment building in Country A that he owned. The apartment building was valued at $10 million and the taxpayer's unreported gain on the sale was $6 million. The related tax deficiency was $2,100,000. The taxpayer deposited the entire $10 million, from the sale, in the checking account with the foreign bank. $10 million represented the highest balance in the foreign checking account during the year and was the balance in the account as of June 30 of the following year, the date that an FBAR was due. The apartment building that was sold was held in a foreign trust that was a grantor trust (with the taxpayer as the grantor). The taxpayer established the trust in 2008, just prior to the sale of the apartment building, and transferred the building to the trust. The taxpayer did not file a Form 3520 to report the creation of the trust and the transfer of property into the trust. The Offshore Penalty under 2011 OVDI will be $2,500,000 (i.e., 25% of $10 million). The taxpayer would also be required to pay the $2,100,000 tax deficiency, interest, and a 20% accuracy-related penalty. A 20% penalty on a $2,100,000 deficiency is $420,000. If the taxpayer elected to opt out, he could face an FBAR penalty with respect to the 2008 calendar year of $5,000,000 (i.e., a 50% willful FBAR penalty on the balance in the checking account as of June 30, the date that the FBAR was due). Taxpayer will also owe tax, penalties, and interest with respect to the $2,100,000 deficiency. The taxpayer would also be subject to FBAR penalties for all other open years, if the aggregate balance in the checking account exceeded $10,000 during each year. Upon examination, the revenue agent may determine that the nonreporting was due to fraud. In that case, the civil fraud penalty on the $2.1 million tax deficiency attributable to fraud would be $1,575,000 (i.e., 75% of $2,100,000). The IRC § 6677 penalty for failing to file the Form 3520 information return would be an additional $3.5 million (i.e., 35% of $10 million). |
|
|
|||
|
Civil Settlement Structure
|
Opt out and 1 year willful FBAR penalty
|
Opt out and assume the civil fraud penalty applied
|
|
|
|
|||
|
Income Tax Due (not including interest)
|
$2,100,000
|
$2,100,000
|
$2,100,000
|
|
|
|||
|
20% Accuracy-related penalty
|
$420,000
|
$420,000
|
0
|
|
|
|||
|
25% Offshore Penalty
|
$2,500,000
|
0
|
0
|
|
|
|||
|
Civil Fraud Penalty
|
0
|
0
|
$1,575,000
|
|
|
|||
|
§ 6677 Penalty
|
0
|
$3,500,000
|
$3,500,000
|
|
|
|||
|
FBAR Penalty
|
0
|
$5,000,000
|
$5,000,000
|
|
|
|||
|
Total
|
$5,020,000
|
$11,020,000
|
$12,175,000
|
|
|
|||
|
Example 5 — Civil Fraud Penalty Warranted
In 2002, Taxpayer sold a building located in Country X for $400,000 short term capital gain, which he intentionally failed to report on his 2002 Form 1040. Assume the taxpayer's basis in the building was zero. He deposited the sales proceeds in an offshore account with a bank located in Country Y. The account with the bank in Country Y is in the name of a trust the taxpayer established in Country Z in 2000. The account earned $12,000 in interest each year from 2003 through 2010. The taxpayer closed the account with the bank in Country Y in 2010 and brought the funds back into the United States, disguising the funds as a loan from an allegedly unrelated entity. The highest balance in the foreign account was $496,000. The Offshore Penalty under 2011 OVDI is $124,000 (i.e., 25% of $496,000). The total of the tax deficiencies for the years 2002 through 2010 was $173,600. This consisted of a tax deficiency of $140,000 for the 2002 year (for the unreported gain of $400,000) and a total of $33,600 for the tax years 2003 through 2010 (for the unreported interest income). The 75% civil fraud penalty would otherwise apply with respect to the related tax deficiencies. There is no statute of limitations for assessments of tax attributable to fraud. The total of the IRC § 6677 penalty for failing to file a Form 3520 to report the $400,000 transfer to the account (35% of $400,000) and the failure to file Forms 3520-A (5% of the $400,000 plus the interest income added each year) was $495,200. The statute of limitations for assessing FBAR penalties for willful violations in each year is open for the 2004 through 2010 calendar years. The total amount of willful FBAR penalties that may be assessed is $1,362,000 (50% of the balance in the account for each year, including the $12,000 in interest income added to the account each year). |
|
|
||
|
Civil Settlement Structure
|
Opt out and 8 years § 6677 penalty and 6 years FBAR Penalty
|
|
|
|
||
|
Income Tax Due (not including interest)
|
$33,600
|
$173,600
|
|
|
||
|
75% Civil Fraud Penalty
|
0
|
$130,200
|
|
|
||
|
20% Accuracy Related Penalty
|
$5,040
|
0
|
|
|
||
|
25% Offshore Penalty
|
$118,000
|
0
|
|
|
||
|
§ 6677 Penalty
|
0
|
$495,200
|
|
|
||
|
FBAR Penalty
|
0
|
$1,362,000
|
|
|
||
|
Total
|
$156,640
|
$2,161,000
|
|
|
||
|
|
||
|
51.3
|
If I opt out of the 2011 OVDI and undergo a regular examination,
is there a chance my case could be referred back to Criminal Investigation
for penalties or prosecution?
|
Yes. Criminal Investigation's Voluntary Disclosure Practice
provides a recommendation that you not be prosecuted for violations up to the
date of your disclosure. If your disclosure is ultimately determined to have
not been complete, accurate, and truthful, or if you commit a crime after the
date of your voluntary disclosure, you are subject to penalties and
prosecution. The facts of the example were chosen to illustrate particular
issues and do not represent a full analysis of a taxpayer's particular
situation. Consequently, the example may not be relied upon in dealing with
any taxpayer's actual case. For the following example, assume a 35% tax rate
on all unreported income.
Example 6 - IRS Learns of Unreported Income and False Statements After Opt Out Taxpayer made a voluntary disclosure for tax years 2003 through 2010 under the 2011 OVDI to report a foreign bank account he opened while working outside the United States. The highest aggregate balance in the account was $1,000,000. The account earned a total of $350,000 over the 8 years that was not reported on his tax returns. On his voluntary disclosure application, the taxpayer stated that he worked full-time overseas as a consultant from 1989 through 1999, but he had to return to the United States permanently after a medical condition prevented him from continuing to work. He stated that he currently lives on his savings from the foreign account and a small disability pension. The taxpayer elected to opt out of the 2011 OVDI because he believed the total tax, interest, and penalties were too high. Particularly, the taxpayer stated that the $250,000 offshore penalty (25% of $1,000,000) was too severe. He would rather take his chances being audited so he could argue reasonable cause and that he did not willfully fail to file the FBARs. The assigned examiner placed tax years 2003 through 2010 under regular examination. As part of the examination, the examiner performed the gross income tests required by the Internal Revenue Manual. The analysis disclosed that the income reported by the taxpayer from 2003 through 2010 was much less than his expenditures during the same period. The examiner's analysis disclosed that over the 8 year period, the taxpayer spent approximately $750,000, roughly $50,000 per year more than he earned during the same period. When the examiner asked the taxpayer how he was able to support himself, the taxpayer stated that because he was unable to be gainfully employed due to his medical condition, he received gifts and help from family members and friends. He could not, however, provide any proof of the gifts or even recall the names of the family members and friends who helped him. Ultimately, through third-party contacts the examiner located a business owner for whom the taxpayer performed consulting services. The business owner admitted that he paid the taxpayer approximately $50,000 a year “under the table.” Due to the pattern of significant amounts of unreported income over an 8 year period and the false statements made by the taxpayer in his application and to the examiner, the case could be referred to Criminal Investigation for investigation and possible prosecution and assertion of the civil fraud penalty. |
|
|
||
|
The income tax due is computed on the unreported offshore
interest income ($350,000) and the unreported wages ($400,000). $750,000 at a
35% tax rate = $262,500
|
Civil Settlement Structure assuming the taxpayer had voluntarily
disclosed all unreported income [1]
|
Opt out and the civil fraud penalty and willful FBAR applied
|
|
|
||
|
Income Tax Due (not including interest)
|
$262,500
|
$262,500
|
|
|
||
|
20% Accuracy-related penalty
|
$24,500
|
0
|
|
|
||
|
25% Offshore Penalty
|
$250,000
|
0
|
|
|
||
|
Civil Fraud Penalty [2]
|
$105,00
|
$196,875
|
|
|
||
|
FBAR Penalty ($500,000/yr 2004-2009)
|
0
|
$3,00,000
|
|
|
||
|
Total
|
$642,000
|
$3,459,375
|
|
|
||
|
Footnotes for answer 51.3:
|
|
[1] It is assumed that the “under the table” income was reported
on the properly prepared amended returns as required by the terms of the
OVDI.
|
|
[2] Civil fraud penalty computed on “under the table” income in
OVDI and on all unreported income after opt out.
|
|
|
||
|
52.
|
Under what circumstances would a taxpayer making a voluntary
disclosure under this initiative qualify for a reduced 5 percent offshore
penalty?
|
Unless the taxpayer would owe a lesser amount under FAQ 50,
taxpayers making voluntary disclosures who fall into one of the three
categories described below will qualify for a 5 percent offshore penalty.
Examiners have no authority to negotiate a different offshore penalty
percentage.
1. Taxpayers who meet all four of the following conditions: (a) did not open or cause the account to be opened (unless the bank required that a new account be opened, rather than allowing a change in ownership of an existing account, upon the death of the owner of the account); (b) have exercised minimal, infrequent contact with the account, for example, to request the account balance, or update accountholder information such as a change in address, contact person, or email address; (c) have, except for a withdrawal closing the account and transferring the funds to an account in the United States, not withdrawn more than $1,000 from the account in any year for which the taxpayer was non-compliant; and (d) can establish that all applicable U.S. taxes have been paid on funds deposited to the account (only account earnings have escaped U.S. taxation). For funds deposited before January 1, 1991, if no information is available to establish whether such funds were appropriately taxed, it will be presumed that they were. Example 1: When the taxpayer's father died, the taxpayer inherited two offshore accounts. His father's last deposit to the accounts was more than 30 years ago. The taxpayer provided his email address to the bank to receive bank statements by email and indicated an investment approach as required by the bank to open the account in the taxpayer's name. Twice he has been to the foreign jurisdiction and talked to a banker—during one of those visits he withdrew $1,000 from one of the accounts. Otherwise, he did not withdraw any money from the accounts until last year, when he closed the accounts and repatriated the money to a U.S. bank. He never reported earnings on the accounts on his U.S. tax returns and he never filed an FBAR. He is entitled to the reduced 5% offshore penalty. Example 2: The facts are the same as in example 1, except that $40,000 of the funds were deposited to one of the accounts in 1995. The taxpayer would have to identify the source of the deposit and, if the source was taxable in the U.S., prove that U.S. income tax was paid on those funds. In the absence of such proof, the taxpayer is not entitled to the reduced 5% offshore penalty. Example 3: The facts are the same as in example 1, except that subsequent to opening the account, the taxpayer voluntarily provided instructions to the bank concerning the investment of funds. The taxpayer is not entitled to the reduced 5% offshore penalty. 2. Taxpayers who are foreign residents and who were unaware they were U.S. citizens. Example 1: The taxpayer was born in the U.S. to parents of foreign citizenship. She grew up in a foreign jurisdiction, unaware that she had been born in the U.S. She has a $60,000 account in the foreign jurisdiction. She has never filed U.S. returns or FBARs. She became aware she was a U.S. citizen when she had to get a birth certificate in order to obtain a passport from the foreign jurisdiction where she resides. She is entitled to the reduced 5% offshore penalty. Subsequent to learning of her U.S. citizenship, taxpayer took no action with respect to her foreign accounts that would disqualify a U.S. taxpayer from the 5 percent penalty under paragraph 1, above. Example 2: The facts are the same as in example 1, except that the taxpayer always knew she was a U.S. citizen and never inquired about her U.S. tax obligations. The taxpayer is not entitled to the reduced 5% offshore penalty, unless she qualifies under paragraph 1 or 3. 3. Taxpayers who are foreign residents and who meet all three of the following conditions for all of the years of their voluntary disclosure: (a) taxpayer resides in a foreign country; (b) taxpayer has made a good faith showing that he or she has timely complied with all tax reporting and payment requirements in the country of residency; and (c) taxpayer has $10,000 or less of U.S. source income each year. For these taxpayers only, the offshore penalty will not apply to non-financial assets, such as real property, business interests, or artworks, purchased with funds for which the taxpayer can establish that all applicable taxes have been paid, either in the U.S. or in the country of residence. This exception only applies if the income tax returns filed with the foreign tax authority included the offshore-related taxable income that was not reported on the U.S. tax return. Example 1: The taxpayer is a U.S. citizen who has lived and worked as a corporate executive in Country X since 1995. His income has included earnings in excess of $250,000 in each year, as well as bank interest and investment income on financial accounts that had a high aggregate balance of $1.2 million in 2009. He has paid all required taxes on his earnings and investment income in Country X in every year, but has filed no U.S. income tax returns since moving out of the United States. In addition to his financial accounts, the taxpayer has acquired a personal residence in Country X with an equity of $900,000 and an automobile worth $85,000, both financed with previously taxed savings from the U.S., as well as his salary and investment earnings in Country X. Because the taxpayer was fully tax compliant in Country X, he will be eligible for a reduced offshore penalty of 5 percent of the value of the financial accounts, or $60,000. The residence and automobile will not be included in the penalty base because the funds used to acquire them were fully taxed in the Country X. Example 2: The taxpayer is a U.S. citizen who has lived in Country X since 1995. He is an entrepreneur who developed his own software business, which he operated as a wholly owned corporation, ABC Corp., incorporated in Country X, until he took the corporation public in 2005. After the IPO, the taxpayer sold ABC stock at a capital gain of $5 million, and retained other ABC stock with a market value of approximately $20 million. He used $2 million of the stock proceeds to purchase a personal residence and put the remainder in his investment accounts. His income has included salary exceeding $250,000 in each year, the $5 million capital gain in 2005, and bank interest and investment income on financial accounts that had a high aggregate balance of $3.8 million in 2009. He has paid all required taxes on his earnings, capital gain, and investment income in Country X in every year, but has filed no U.S. income tax returns since moving out of the United States. Because the taxpayer was fully tax compliant in the country of residence, he will be eligible for a reduced offshore penalty of 5 percent of the value of the financial accounts, or $190,000. The ABC stock and the personal residence will not be included in the penalty base because the funds used to acquire them were fully taxed in the country of residence. Taxpayers who participated in the 2009 OVDP whose cases have been resolved and closed with a Form 906 closing agreement who believe the facts of their case qualify them for the 5% reduced penalty criteria of the 2011 OVDI, but paid a higher penalty amount under the 2009 OVDP should provide a statement to this effect including all pertinent contact information (name, address, SSN, home/cell phone numbers), the name of the Revenue Agent assigned to their case, and a copy of their closing agreement. This information should be sent to: Internal Revenue Service 3651 S. I H 35 Stop 4301 AUSC Austin, TX 78741 Attn: 2009 OVDP Determination Upon receipt of this information, the case will be assigned to an examiner to review and make a determination. |
|
|
||
|
53.
|
Under what circumstances would a taxpayer making a voluntary
disclosure under this initiative qualify for a reduced 12.5 percent offshore
penalty?
|
Unless the taxpayer qualifies for a lesser payment as calculated
under FAQ 50 or a 5 percent offshore penalty under FAQ 52, taxpayers whose
highest aggregate account balance (including the fair market value of assets
in undisclosed offshore entities and the fair market value of any foreign
assets that were either acquired with improperly untaxed funds or produced
improperly untaxed income) in each of the years covered by the 2011 OVDI is
less than $75,000 will qualify for a 12.5 percent offshore penalty. As in
other cases, examiners have no authority to negotiate a different offshore
penalty percentage.
Example 1: The taxpayer was born in a foreign jurisdiction and is now a U.S. citizen. He has a landscaping business in the U.S. He sends money to an account in the foreign jurisdiction that he owns jointly with his mother (who is a resident of that jurisdiction). The account never has more than $75,000 in it. He has never filed an FBAR or paid U.S. tax on the earnings from the account. He is entitled to the reduced 12.5% offshore penalty. The result would be the same for taxpayers who are U.S. citizens by birth. Example 2: The facts are the same as in example 1, except that the taxpayer made a deposit to the account in 2005 that briefly brought the account balance to $78,000. Because the highest account balance during the years covered by the 2011 OVDI was greater than $75,000, the taxpayer is not entitled to the reduced 12.5% offshore penalty. Taxpayers who participated in the 2009 OVDP whose cases have been resolved and closed with a Form 906 closing agreement who believe the facts of their case qualify them for the 12.5% reduced penalty criteria of the 2011 OVDI, but paid a higher penalty amount under the 2009 OVDP should provide a statement to this effect including all pertinent contact information (name, address, SSN, home/cell phone numbers), the name of the Revenue Agent assigned to their case, and a copy of their closing agreement. This information should be sent to: Internal Revenue Service 3651 S. I H 35 Stop 4301 AUSC Austin, TX 78741 Attn: 2009 OVDP Determination Upon receipt of this information, your case will be assigned to an examiner to review and make a determination. |
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IRS 2011 Offshore Voluntary Disclosure Initiative Frequently Asked
Questions and Answers, Updated August 31, 2011.
The
IRS has opened a second offshore voluntary compliance initiative patterned on a
similar 2009 program. In exchange for full disclosure of unreported offshore
accounts, the IRS offers taxpayers a reduced penalty framework. Taxpayers must
file all original and amended returns and include payment for taxes, interest
and accuracy-related penalties by August 31, 2011. To request participation in
the 2011 initiative, taxpayers should contact the IRS at Offshore Voluntary
Disclosure Coordinator, 600 Arch Street, Room 6404, Philadelphia, PA 19106. The
initiative is scheduled to run through August 31, 2011.
Second
Special Voluntary Disclosure Initiative Opens; Those Hiding Assets Offshore
Face Aug. 31 Deadline
The Internal Revenue Service announced a special voluntary
disclosure initiative designed to bring offshore money back into the U.S. tax
system and help people with undisclosed income from hidden offshore accounts
get current with their taxes. The new voluntary disclosure initiative will be
available through Aug. 31, 2011.
“As we continue to amass more information and pursue more people
internationally, the risk to individuals hiding assets offshore is increasing,”
said IRS Commissioner Doug Shulman. “This new effort gives those hiding money
in foreign accounts a tough, fair way to resolve their tax problems once and
for all. And it gives people a chance to come in before we find them.”
The IRS decision to open a second special disclosure initiative
follows continuing interest from taxpayers with foreign accounts. The first
special voluntary disclosure program closed with 15,000 voluntary disclosures
on Oct. 15, 2009. Since that time, more than 3,000 taxpayers have come forward
to the IRS with bank accounts from around the world. These taxpayers will also
be eligible to take advantage of the special provisions of the new initiative.
“As I've said all along, the goal is to get people back into the
U.S. tax system,” Shulman said. “Combating international tax evasion is a top
priority for the IRS. We have additional cases and banks under review. The
situation will just get worse in the months ahead for those hiding assets and
income offshore. This new disclosure initiative is the last, best chance for
people to get back into the system.”
The new initiative announced - called the 2011 Offshore Voluntary
Disclosure Initiative (OVDI) — includes several changes from the 2009 Offshore
Voluntary Disclosure Program (OVDP). The overall penalty structure for 2011 is
higher, meaning that people who did not come in through the 2009 voluntary
disclosure program will not be rewarded for waiting. However, the 2011
initiative does add new features.
For the 2011 initiative, there is a new penalty framework that
requires individuals to pay a penalty of 25 percent of the amount in the
foreign bank accounts in the year with the highest aggregate account balance
covering the 2003 to 2010 time period. Some taxpayers will be eligible for 5 or
12.5 percent penalties. Participants also must pay back-taxes and interest for
up to eight years as well as paying accuracy-related and/or delinquency
penalties.
Taxpayers participating in the new initiative must file all
original and amended tax returns and include payment for taxes, interest and
accuracy-related penalties by the Aug. 31 deadline.
The IRS is also making other modifications to the 2011 disclosure
initiative.
Participants face a 25 percent penalty, but taxpayers in limited
situations can qualify for a 5 percent penalty.
The IRS also created a new penalty category of 12.5 percent for
treating smaller offshore accounts. People whose offshore accounts or assets
did not surpass $75,000 in any calendar year covered by the 2011 initiative
will qualify for this lower rate.
The 2011 initiative offers clear benefits to encourage taxpayers
to come in now rather than risk IRS detection. Taxpayers hiding assets offshore
who do not come forward will face far higher penalty scenarios as well as the
possibility of criminal prosecution.
“This is a fair offer for people with offshore accounts who want
to get right with the nation's taxpayers,” Shulman said. “This initiative
offers them the chance to get certainty about how their case will be handled.
Just as importantly, those who truly come in voluntarily can avoid criminal
prosecution as well.”
The IRS is handling processing of the voluntary disclosures in
centralized units to more efficiently process the applications.
The IRS will also launch a new section on www.IRS.gov that
includes the full terms and conditions on the 2011 Offshore Voluntary
Disclosure Initiative, including an extensive set of questions and answers to
help taxpayers and tax professionals. The web site also includes details on how
people can make a voluntary disclosure.
In the first voluntary disclosure program in 2009, taxpayers faced
up to a 20 percent penalty covering up to a six-year period. Taxpayers came
forward with about 15,000 voluntary disclosures in that effort covering banks
in more than 60 countries.
Shulman said IRS efforts in the international arena will only
increase as time goes on.
“Tax secrecy continues to erode,” Shulman said. “We are not
letting up on international tax issues, and more is in the works. For those
hiding cash or assets offshore, the time to come in is now. The risk of being
caught will only increase.”
IRS News
Release IR-2011-14, February 8, 2011.
The
Financial Crimes Enforcement Network (FinCEN) extended the filing date to June
30, 2012, for the FBAR form (TD-F 90-22.1) for employees and officers of
investment advisors registered with the Securities and Exchange Commission
(SEC) with only signature authority over foreign financial accounts of persons
that are not registered investment companies. The extension applies to Form
TD-F 90-22.1 (FBARs) for calendar year 2010 and to FBARs for calendar year 2009
or earlier calendar years for which the filing deadline was properly deferred
under Notice
2009-62, I.R.B. 2009-35, 260, or Notice 2010-23, I.R.B. 2010-11, 441.
FinCEN
Notice 2011-2 FBAR Filing Requirement—Extended Filing Date Relating to Officers
or Employees of Investment Advisors Registered With the Securities and Exchange
Commission
FinCEN is issuing this notice concerning reports of foreign financial
accounts (“FBAR”) to provide administrative relief in the case of officers or
employees of investment advisors registered with the Securities and Exchange
Commission who have signature or other authority over but no financial interest
in certain foreign financial accounts.
On February 24, 2011, FinCEN published a final rule that amended
the Bank Secrecy Act (“BSA”) regulations regarding reports of foreign financial
accounts (the “Final Rule”). 1 The Final Rule
addressed the scope of the persons that are required to file reports of foreign
financial accounts and further specified the types of accounts that are
reportable.
The Final Rule also provided filing relief in the form of
exceptions for officers or employees with signature or other authority over
certain foreign financial accounts. These exceptions apply only where the
officers or employees have no financial interest in the reportable account. One
of those exceptions applies to officers and employees of Authorized Service
Providers who have signature or other authority over (but no financial interest
in) a foreign financial account owned or maintained by an investment company
that is registered with the Securities and Exchange Commission. 2
“Authorized Service Provider” means an entity that is registered
with and examined by the Securities and Exchange Commission and that provides
services to an investment company registered under the Investment Company Act
of 1940 (“registered investment company”).
Following the release of the final rule, FinCEN received questions
about processing issues in filing the FBAR by the June 30, 2011 compliance date
in the case of officers and employees of investment advisors registered with
the Securities and Exchange Commission when such individuals have signature or
other authority over (but no financial interest in) the foreign financial
accounts of persons that are not registered investment companies.
In light of these questions, FinCEN is granting an extension of
the filing date to June 30, 2012 to allow officers and employees of investment
advisors registered with the Securities and Exchange Commission with signature
or other authority over (but no financial interest in) the foreign financial
accounts of persons that are not registered investment companies additional
time to file FBARs 3. The extension is applicable to FBARs for
calendar year 2010 and FBARs for calendar year 2009 or earlier calendar years
for which the filing deadline was properly deferred under Notice 2009-62,
2009-35 I.R.B. 260, or Notice 2010-23, 2010-11 I.R.B. 441. Questions
or comments regarding the contents of this notice may be addressed to the
FinCEN Regulatory Helpline at 800-949-2732. General FBAR filing questions may
be directed to the IRS hotline at 800-800-2877, option 2, or to
FBARQuestions@irs.gov.
Dated: June 17, 2011
/x/
James H. Freis, Jr.
Director, Financial Crimes Enforcement Network
FinCEN Notice 2011-2, June 17, 2011, supplementing FinCEN Notice
2011-1, Updated June 6, 2011.
The
filing date has been extended from June 30, 2011, to June 30, 2012, for those
individuals with only signature authority who are required to file the Report
of Foreign Bank and Financial Accounts (FBAR) for calendar year 2010. The
extension applies only to a small subset of individuals who are employees or
officers of a regulated entity with no financial interest in a foreign
financial account of another entity.
FinCEN
Notice 2011-1 FBAR Filing Requirement—Extended Filing Date Related to
Exceptions Described in 31 CFR 1010.350(f)(2) (Revised)
FinCEN is issuing this notice concerning reports of foreign
financial accounts (“FBAR”) to provide administrative relief in connection with
exceptions described in 31 CFR 1010.350(f)(2), relating to certain exceptions
concerning signature or other authority.
On February 24, 2011, FinCEN published a final rule that amended the
Bank Secrecy Act (“BSA”) regulations regarding reports of foreign financial
accounts (the “Final Rule”). 1 The Final Rule addressed the scope of the
persons that are required to file reports of foreign financial accounts and
further specified the types of accounts that are reportable.
The Final Rule also provided filing relief in the form of
exceptions for officers or employees with signature or other authority over
certain foreign financial accounts. These exceptions apply only where the
officers or employees have no financial interest in the reportable account. The
exceptions appear at 31 CFR 1010.350(f)(2)(i)-(v).
Following the release of the final rule, FinCEN received questions
concerning the application of the exceptions by the June 30, 2011 compliance
date to the following individuals:
(1) an employee or officer of an entity under §1010.350(f)(2)(i)-(v)
who has signature or other authority over and no financial interest in a
foreign financial account of a controlled person 2 of the entity; or
(2) an employee or officer of a controlled person of an entity
under §1010.350(f)(2)(i)-(v) who has signature or other authority over and no
financial interest in a foreign financial account of the entity, the controlled
person, or another controlled person of the entity.
In light of these questions, FinCEN is granting an extension of
the filing date to June 30, 2012 to allow these individuals additional time to
file FBARs based on their signature or other authority in situations (1)
through (2) described above. For all other individuals with an FBAR filing
obligation, the filing date remains unchanged. Questions or comments regarding
the contents of this notice may be addressed to the FinCEN Regulatory Helpline
at 800-949-2732. General FBAR filing questions may be directed to the IRS
hotline at 800-800-2877, option 2, or to FBARQuestions@irs.gov.
Dated: June 2, 2011
James H. Freis, Jr.
Director,
Financial Crimes Enforcement Network
FinCEN Notice 2011-1, Updated June 2, 2011, supplemented by FinCEN
Notice 2011-2, June 17, 2011.
The IRS has issued instructions to taxpayers on how to answer
questions related to foreign financial accounts (FFA) on tax year 2010 federal
income tax and information returns. The recently published final FBAR
regulations should be referenced for returns filed on or after March 28, 2011.
Persons filing returns before March 28, 2011, however, may use the existing
FBAR regulations in answering the FFA-related questions on 2010 returns or they
may opt to use the more recent final regulations and revised FBAR instructions.
The IRS will take the latter regulations and instructions into account when
evaluating the response to the person’s FFA-related questions.
Notice
2011-31, I.R.B. 2011-17, 724.
Persons having signature authority over, but no financial interest
in, a foreign financial account in 2009 or earlier calendar years for which the
reporting deadline was properly deferred under Notice 2009-62, I.R.B. 2009-35, 260, or Notice 2010-23,
I.R.B. 2010-11, 441, will have until November 1, 2011, to file FBARs with
respect to those accounts.
Notice
2011-54, I.R.B. 2011-29, 53, modifying and supplementing Notice 2010-23,
I.R.B. 2010-11, 441.
The IRS has extended its administrative relief for certain persons
required to file Form TD F 90-22.1, Report of Foreign Bank and Financial
Accounts (FBAR). Persons with signature authority over a foreign financial
account, but no financial interest in the account, for which an FBAR would
otherwise be due on June 30, 2010, have until June 30, 2011, to report those
accounts. Persons with a financial interest in, or signature authority over, a
foreign commingled fund must file an FBAR only if the fund is a mutual fund.
Those who qualify for this relief can answer "no" to the
FBAR-related questions on tax forms (2009 or earlier) that ask about the
existence of a financial interest in, or signature authority over, a foreign
financial account.
Notice
2010-23, I.R.B. 2010-11, 441, modified and supplemented by Notice 2011-54,
I.R.B. 2011-29, 53, and modifying and supplementing Notice 2009-62,
I.R.B. 2009-35, 260.
The IRS has extended the due date for certain specified persons to
file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).
Persons with signature authority, but no financial interest in, a foreign
financial account, and persons with a financial interest in, or signature
authority over, a foreign commingled account, will have until June 30, 2010, to
file FBARs for 2008, 2009 and earlier calendar years.
Notice
2009-62, I.R.B. 2009-35, 260, modified and supplemented by Notice 2010-23,
I.R.B. 2010-11, 441.
The IRS has extended its suspension for foreign persons of the
requirement to file Form TD F 90-22.1, Report of Foreign Bank and Financial
Accounts (FBAR), implemented in Announcement 2009-51, I.R.B. 2009-25, 1105,
which suspended the FBAR filing requirement for persons who were not U.S.
citizens, U.S. residents, or domestic entities. Thus, the filing requirement
for FBARs due on June 30, 2010, as well as for FBARs for 2009 and earlier
calendar years, are suspended for those same persons and entities.
Announcement
2010-16, I.R.B. 2010-11, 450, supplementing and superseding Announcement 2009-51,
I.R.B. 2009-25, 1105.
The IRS temporarily suspended the requirement to file Form TD F
90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), due on June 30,
2009, for persons who are not citizens, residents or domestic entities. The
form, which was revised in October 2008, changed the definition of U.S. person
and resulted in some confusion, needing additional guidance. Therefore, for
FBARs due on June 30, 2009, taxpayers should use the prior (July 2000) version
of the definition in determining who must file the FBAR. Under that definition,
a U.S. person includes (1) a citizen or resident of the United States, (2) a
domestic partnership, (3) a domestic corporation, or (4) a domestic estate or
trust. The substitution applies only for FBARs due on June 30, 2009.
Announcement
2009-51, I.R.B. 2009-25, 1105 supplemented and superseded by Announcement 2010-16,
I.R.B. 2010-11, 450.
The IRS has extended the deadline for special voluntary
disclosures by taxpayers with unreported income from hidden offshore accounts,
until October 15, 2009.
IRS News
Release 2009-84, September 21, 2009.
The Financial Crimes Enforcement Network (FinCEN) has extended the
filing date from June 30, 2012, to June 30, 2013, for those individuals with
only signature authority over foreign financial accounts who are required to
file the Report of Foreign Bank and Financial Accounts (FBARs). All other U.S.
persons required to file an FBAR are required to meet the June 30, 2012, filing
date. Unlike federal income tax returns, extensions of time to file FBARs are
generally not available.
FinCEN Notice 2012-1, February 14, 2012.
The Financial Crimes Enforcement Network (FinCEN) has extended the
filing date from June 30, 2012, to June 30, 2013, for those individuals with
only signature authority over foreign financial accounts who are required to
file the Report of Foreign Bank and Financial Accounts (FBARs). All other U.S.
persons required to file an FBAR are required to meet the June 30, 2012, filing
date. Unlike federal income tax returns, extensions of time to file FBARs are
generally not available.
FinCEN Press Release, February 14, 2012.
FinCEN allows individuals to electronically file the Report of
Foreign Bank and Financial Accounts (FBAR). Individuals worldwide can sign up
to file their individual FBARs by accessing the FinCEN efiling website at http://bsaefiling.fincen.treas.gov/main.html.
FinCEN Final Notice, February 24, 2012.
FinCEN announced on February 24 a general exemption from mandatory
electronic filing for the FBAR. FinCEN has moved the deadline for mandatory
FBAR e-filing until after July 1, 2013. The temporary exemption does not
relieve filers of the obligation to file an FBAR. The exemption also does not
affect the required date the FBAR must be received. FinCEN also announced that
it may provide a limited number of exemptions from mandatory electronic filing
for filers of other reports. Unlike the FBAR exemption, there is no general
exemption for these reports. Rather, filers must apply for an exemption and
show a substantial hardship in meeting the e-file mandate.
FinCEN Press Release, February 24, 2012.
The IRS has updated its frequently asked questions about its
offshore voluntary disclosure program (OVDP) to provide more updated details
about its current OVDP. Generally, taxpayers using the new procedures will be
required to file delinquent tax returns along with appropriate related
information returns for the past three years, and to file delinquent FBARs for
the past six years. Submissions from taxpayers that present higher compliance
risk will be subject to a more thorough review and potentially subject to an
audit, which could cover more than three tax years.
Offshore Voluntary Disclosure Program Frequently Asked Questions
and Answers, June 26, 2012.
The IRS has updated the offshore voluntary disclosure program
(OVDP) announced in IR-2012-5 following
continued strong interest from taxpayers and tax practitioners. The program is
similar to the 2011 program; however, there is no set deadline for people to
apply and the penalty has been raised to 27.5 percent from 25 percent in the
2011 program. The reduced penalty categories of 5 percent and 12.5 percent are still
available. In addition, the IRS has closed a loophole that has been used by
some taxpayers with offshore accounts. A taxpayer who does not notify the U.S.
Justice Department of an appeal of a foreign government’s disclosure will no
longer be eligible for the OVDP. The IRS also put taxpayers on notice that
their eligibility for OVDP could be terminated once the U.S. government has
taken action in connection with their specific financial institution.
IRS News
Release IR-2012-64, June 26, 2012.
The IRS has announced a plan to help U.S. citizens residing
overseas, including dual citizens, catch up with tax filing obligations and
provide assistance for individuals with foreign retirement plan issues. The new
procedures will go into effect on September 1, 2012. Taxpayers using the new
procedures will be required to file delinquent tax returns along with
appropriate related information returns for the past three years, and to file
delinquent FBARs for the past six years.
IRS News
Release IR-2012-65, June 26, 2012.
The government was entitled to enforce civil penalties against an
individual for failure to timely file a Form TDF 90-22.1, Report of Foreign
Bank and Financial Accounts (FBAR). The district court erred in finding that
the individual did not willfully violate 31 U.S.C. §5314. The individual
checked the "No" box on his Form 1040 indicating that he
had no foreign bank accounts and signed the return under penalty of perjury.
Therefore, the individual was presumed to be aware of the return’s contents.
Further, the individual’s testimony indicated that he made a conscious effort
to avoid learning about the FBAR filing requirements and his false answers on
the tax organizer he provided to his return preparer and on his Form 1040
demonstrated that he sought to conceal sources of income or other financial
information from the IRS. Moreover, as part of his guilty plea, the individual
admitted to willfully failing to report his foreign bank accounts to the IRS as
part of a larger tax evasion scheme. Therefore, the individual’s undisputed
conduct was reckless, which was sufficient to satisfy the willfulness
requirement of 31 U.S.C. §5314.
J.B. Williams, CA-4, 2012-2 ustc ¶50,475.
Unpublished opinion reversing a DC Va. decision, 2010-2 ustc ¶50,623.
Compelling an individual to produce foreign bank account records
required to be maintained by the Bank Secrecy Act of 1970 (BSA), 31 U.S.C. §5311,
did not violate the individual’s Fifth Amendment privilege against
self-incrimination because the required records doctrine applied. Under the
required records doctrine, an individual may be compelled to produce records
that: (1) are required to be kept pursuant to a valid regulatory program, (2)
contain customarily kept information, and (3) assume public aspects that render
them analogous to public documents. The required records doctrine allows the
government to inspect records it requires an individual to keep as a condition
of voluntarily participating in a regulated activity. The voluntary choice to
engage in an activity that requires recordkeeping under a valid civil
regulatory scheme carries with it the possibility that those records might have
to be turned over on demand, notwithstanding any Fifth Amendment privilege,
whether the privilege arises by virtue of the records’ contents or by the act
of producing them.
In re Special February 2011-1 Grand Jury Subpoena Dated September
12, 2011, CA-9, 2012-2 ustc ¶50,540.
Reversing an unreported DC Ill. decision.
An individual, who failed to comply with a grand jury subpoena
demanding records related to his Swiss bank accounts, was properly held in
contempt for failing to provide the information. The individual was required to
keep and maintain for inspection the foreign account information under the Bank
Secrecy Act of 1970 (BSA), 31 U.S.C. §5311 and under the required records
doctrine the Fifth Amendment privilege against self-incrimination did not apply
to records that were required to be kept and produced as a result of the
individual’s voluntary participation in a regulated activity. There was nothing
inherently criminal about having a foreign bank account; therefore, admitting
to having such an account carried no risk of self-incrimination. Moreover,
there is nothing incriminating about the account information required to be
kept because the records at issue consisted of records that bank customers
would customarily keep in order to access their foreign bank accounts and to
file their Reports of Foreign Bank and Financial Accounts (FBAR). Further, it
is the act of not reporting the information or maintaining the records that is
criminal.
In re Grand Jury Investigation M.H.,
CA-7, 2011-2 ustc ¶50,768.
Affirming an unreported DC Calif. decision.
The IRS has issued instructions and a questionnaire for the new
streamlined filing compliance procedures for nonresident, nonfiler U.S.
taxpayers. The streamlined procedures are designed for U.S. taxpayers living
abroad who failed to timely file U.S. federal income tax returns or Reports of
Foreign Bank and Financial Accounts, Form TD F 90-22.1 (FBARs), and recently
became aware of their filing obligations. The procedures are available for
nonresident U.S. taxpayers who have resided outside of the U.S. since January
1, 2009, who have not filed a U.S. tax return during the same period and who
present a low level of compliance risk.
Streamlined Filing Compliance Procedures for Nonresident, Nonfiler
Taxpayers Questionnaire, August 21, 2012.
Compelling an individual to produce foreign bank account records
required to be maintained by the Bank Secrecy Act of 1970 (BSA), 31 U.S.C. §5311,
did not violate the individual’s Fifth Amendment privilege against
self-incrimination because the required records doctrine applied. Under the
required records doctrine, an individual may be compelled to produce records
that: (1) are required to be kept pursuant to a valid regulatory program, (2)
contain customarily kept information, and (3) assume public aspects that render
them analogous to public documents. The Fifth Amendment is not a barrier to the
enforcement of a valid civil regulatory scheme. The BSA’s record-keeping
requirements are a valid regulatory program that does not exclusively apply to
individuals engaged in criminal activity. The record keeping requirements apply
to all individuals with a foreign bank account and there is nothing inherently
criminal about having a foreign bank account. Further, there was nothing
incriminating about the information required to be kept because the records at
issue consisted of records that bank customers would customarily keep in order
to access their foreign bank accounts and to report annually to the IRS,
pursuant to the IRS’s regulation of offshore banking. Finally, the records had
public aspects because the Treasury Department shares the information it
collects under the record keeping and reporting requirements with other
agencies and the data sharing is designed to serve an important public purpose.
In re Grand Jury Subpoena, CA-5, 2012-2 ustc ¶50,588.
Reversing an unpublished DC Tex. decision.
An individual willfully failed to report his interest in foreign
financial accounts as required by 31 USC §5314 for the two tax years at issue;
therefore, the penalties imposed were proper. The individual was a U.S.
citizen, he knew that he had foreign financial accounts and that he was required
to report his interests in such accounts to the IRS, but he failed to do so.
Moreover, even if he did not have actual, subjective knowledge of the FBAR
requirements when he signed and filed his returns, the risk of failing to
comply with the FBAR requirements was known or obvious. In addition, he failed
to disclose his interest in the accounts to his tax preparer, which was
significant evidence of willfulness or at least recklessness or willful
blindness. Further, he was not excused even if his tax preparer failed to
properly advise him to report his interests in the foreign accounts because the
taxpayer, not the preparer, has the ultimate responsibility to file his return
and pay the tax due. Finally, even if the individual’s decision not to disclose
his interests in the foreign accounts was based on his belief that he did not
hold sufficient interest in those accounts to warrant disclosure, the failure
to disclose would still constitute willfulness. The amount of the penalties
imposed was proper because the foreign accounts had balances of at least
$10,000 in both of the tax years at issue.
J. McBride, DC Utah, 2012-2 ustc ¶50,666.
The Financial Crimes Enforcement Network (FinCEN) announced a
further extension of time for certain Report of Foreign Bank and Financial
Accounts (FBAR) filings in light of ongoing consideration of questions
regarding the filing requirement and its application to individuals with
signature authority over but no financial interest in certain types of
accounts. The filing due date is further extended to June 30, 2014, for
individuals whose filing due date for reporting signature authority was
previously extended. This extension applies to the reporting of signature
authority held during the 2012 calendar year, as well as all reporting
deadlines previously extended. The filing date remains unchanged for all other
individuals with an FBAR filing obligation.
FinCEN Notice 2012-2, December 27, 2012.
A married couple was properly compelled to produce foreign
financial account records required to be maintained by the Bank Secrecy Act of
1970 (BSA), 31 U.S.C. §5311. The couple’s argument that the Fifth Amendment
protected them from compelled disclosure of the documents was rejected because
the required records exception applied. The couple was required to maintain the
records under a regulatory program that was essentially civil in nature, the
information in the records was customarily maintained by banking customers and
the records were analogous to public documents because the Treasury shared the
information with a number of other government agencies. Moreover, the BSA’s
regulatory scheme did not apply exclusively to individuals engaged in criminal
activity. Therefore, the mere act of production did not implicate the Fifth
Amendment.
In re Grand Jury Proceedings, No. 4-10,
CA-11, 2013-1 ustc ¶50,182.
Affirming an unpublished DC Ga. decision.
The United States, Australia and the United Kingdom have announced
plans to share tax information involving trusts and companies holding assets on
behalf of their residents in jurisdictions throughout the world. The IRS,
Australian Tax Office and HM Revenue & Customs have been working together
to analyze data that reveals an extensive use of such entities organized in
jurisdictions including Singapore, the British Virgin Islands, the Cayman
Islands and the Cook Islands. The data contains both the identities of the
individual owners of these entities, as well as the advisors who assisted in
establishing the entity structure.
IRS News
Release IR-2013-48, May 9, 2013.
One significant change has been made to the IRS’s frequently asked
questions (FAQs) on its offshore voluntary disclosure program. Question 17
provides instructions to taxpayers who reported, and paid tax on, all of their
taxable income for prior years, but did not file FBARs. They are instructed
that they should file the delinquent FBARs according to the FBAR instructions,
and they should include a statement explaining why the FBARs are filed late.
FinCEN has released a new form, Form 114a, Record of Authorization
to Electronically File FBARs. This form allows the many filers who submit FBARs
to file the forms jointly with their spouses, as well as to submit them via
third-party preparers. FinCEN is also making technical adjustments to ease the
filing of FBARs and allow for enhancements, such as a new space on the form for
filers to provide reasons for late filing. The form also allows for the
addition of third-party preparer information. In addition, an FBAR batch filing
capability is now available for testing at http://sdtmut.fincen.treas.gov/main.html.
FinCEN
Notice, July 29, 2013.
A certified public accountant who was the managing director of
three foreign corporations with signature authority over the corporations’
foreign bank accounts was properly convicted of failing to file Form TDF
90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). The individual
did not properly report all of his taxable income or pay all of his taxes and,
therefore, he was not entitled to the relief from criminal or civil penalties
provided in Notice
2009-62, I.R.B. 2009-35, 260, and Notice 2010-23, I.R.B. 2010-11, 441. Moreover,
he could not have seen the notices until several years after he had already
violated the law requiring him to file FBARs for the years at issue. Thus, he
could not have mistakenly relied on the advice given in the notices.
J.A. Simon, CA-7, 2013-2 ustc ¶50,480.
Affirming an unpublished DC Ind. decision. Related decision at 2010-2 ustc ¶50,680.
The Financial Crimes Enforcement Network (FinCEN) has issued an
advisory to update financial institutions on activity associated with
regulatory restrictions imposed on Mexican financial institutions for
transactions in U.S. currency. FinCEN issued an advisory in 2012 on U.S.
currency restrictions in Mexico. A financial institution that knows or suspects
that a transaction is designed to repatriate illicit proceeds may be required
to file a Suspicious Activity Report (SAR).
FinCEN
Advisory FIN-2013-A007, September 27, 2013.
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