FBAR Foreign Bank Account Reporting The IRS is assessing huge penalties for undisclosed foreign bank accounts, assets & income. Click for more info FBAR FILING DEADLING HAS BEEN EXTENDED
Tuesday, February 18, 2014
FBAR-What are You Hiding
The collapse of Swiss bank secrecy, the IRS settlement with UBS, the criminal investigation of HSBC and the related IRS voluntary disclosure program all have put foreign bank accounts in the spotlight. Tens of thousands, if not hundreds of thousands, of U.S. taxpayers have foreign bank accounts. Some of those taxpayers opened their foreign bank account in order to hide money or the earnings in the account from the IRS.
However, the majority of taxpayers with foreign bank accounts never intended to hide their foreign accounts from the IRS. Some just inherited the foreign account from a relative who lived abroad at some point in their lives. Other taxpayers lived abroad themselves and opened a bank account in a foreign country as a matter of convenience or necessity. Still other U.S. taxpayers with foreign accounts never even lived in the United States but are U.S. citizens, and therefore are subject to U.S. reporting requirements, simply because one or both of their parents were U.S. citizens.
However, the majority of taxpayers with foreign bank accounts never intended to hide their foreign accounts from the IRS. Some just inherited the foreign account from a relative who lived abroad at some point in their lives. Other taxpayers lived abroad themselves and opened a bank account in a foreign country as a matter of convenience or necessity. Still other U.S. taxpayers with foreign accounts never even lived in the United States but are U.S. citizens, and therefore are subject to U.S. reporting requirements, simply because one or both of their parents were U.S. citizens.
Regardless of why the foreign account was created or acquired, any U.S. person with an interest in, or signatory authority over, a foreign financial account must file a Report of Foreign Bank Accounts (FBAR) with the United States Treasury Department. The IRS recently has stepped up enforcement against taxpayers who fail to file FBARs. The basic penalty for a simple, non-willful failure to file a FBAR is $10,000 per year for 2005 and later years. (Prior to 2005, there was no penalty at all for non-willful violations.) However, if the IRS can prove that the taxpayer willfully failed to file a FBAR, or willfully filed a false FBAR, the penalties are much higher. The taxpayer can be subject to criminal prosecution and, for 2005 and later years, the IRS can impose crippling civil penalties of up to 50% of the highest balance in the foreign account for each year that the violation continues. (Prior to 2005, the penalty for a willful violation was capped at $100,000 per year.)
If the IRS catches a taxpayer who failed to file a FBAR, the IRS will either refer the case for prosecution or attempt to assert a penalty based on some percentage of the highest balance in the foreign account. In fact, even taxpayers who approach the IRS and voluntarily disclose the existence of their foreign account will be charged a penalty based on a percentage of the highest balance in the foreign account. Taxpayers who voluntarily disclosed their foreign account prior to October 15, 2009 are being charged a 20% penalty. Taxpayers who make a voluntary disclosure after October 15, 2009 are still being accepted into the voluntary disclosure program, but they will be charged a penalty of at least 20%, and probably more, of the highest balance in the foreign account.
Any penalty that is based on a percentage of the balance in the foreign account is premised on th
FBAR/OVDI LANCE WALLACH: FBAR Offshore Bank Accounts and Foreign Income Att...
ReplyDeleteFBAR/OVDI LANCE WALLACH: FBAR Offshore Bank Accounts and Foreign Income Att...: You may want to think about participation in the IRS’ offshore tax amnesty program (called the Offshore Voluntary Disclosure Initiative). Do...
FBAR Offshore Bank Accounts and Foreign Income Attacked by IRS. Lance Wallach, expert witness.
You may want to think about participation in the IRS’ offshore tax amnesty program (called the Offshore Voluntary Disclosure Initiative). Do you want to play audit roulette with the IRS? Some clients think they are too small to be prosecuted. They are wrong.
To the average businessperson, only the guys with tens of millions secretly stashed in Swiss bank accounts get prosecuted. Don't tell that to Michael Schiavo. He was just prosecuted for hiding money in a Swiss account back in 2003. How much money does the IRS say he hid? A whopping $90,000. That’s it.
But wait, there is more to the story. Schiavo attempted to do a quiet disclosure during the 2009 amnesty but instead of filling out the amnesty paperwork, he simply trusted that by coming forward voluntarily he could avoid criminal prosecution. He was wrong on all counts. Nothing is too small for the IRS, and nothing is too old.
“So, to save a whopping $40,624 in taxes, this guy risked a felony conviction and prison time, not to mention steep penalties that could very easily eat up the entire $90,000, and also his criminal and civil defense costs.
The smart taxpayers are the ones coming forward and not having to look over their shoulders for the next 10 years.
Time is running out. The tax amnesty runs through August but it takes at least days to jump through all the hoops. We will also fight hard to reduce the penalties down even more. Remember, the IRS can go as low as 5%.
As an expert witness Lance Wallach's side has never lost a case. People need to be careful of 419 Welfare Benefit Plans, 412i plans, Section 79 plans and Captive Insurance Plans. Most of these plans are sold by insurance agents. If you are in an abusive, listed or similar transaction plan you need to file under IRS 6707a. The participant files form 8886, and the salesmen or accountant who signs the tax returns files form 8918 if they got paid over $10,000. They are called
Posted by Lance Wallach at 7:01 AM
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6 comments:
Lance WallachMarch 5, 2014 at 11:43 AM
our experienced International tax team can assess your Foreign Bank Account Report | FBAR requirements, assimilate the necessary information, and prepare your current and past due FBARs. We also have considerable experience in helping taxpayers that have not been historically compliant to deal within the IRS guidelines and minimize their potential penalties through the various IRS Voluntary Disclosure Programs that have been available.
Starting in 2009, the IRS has offered delinquent FBAR filers an opportunity to come forward under various Voluntary Disclosure programs, helping those with unreported offshore accounts get current with their taxes and FBAR filings. Each of the programs has provided different penalty frameworks for taxpayers coming forward. Here is a breakdown of the various VDP’s:
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Indian Business Man Prosecuted For Unreported HSBC India Account
Posted on February 24, 2014
by Brian M
Although all the media attention on unreported foreign accounts appears to focused on Switzerland, the Justice Department and IRS continue to look worldwide for U.S. taxpayers with undeclared offshore accounts. According to a press release from the United States Attorney’s Office, Sameer Gupta pleaded guilty last week to one count of tax evasion after the IRS discovered he had an unreported bank account at HSBC India. He faces 5 years in prison.
Possessing or having signature authority over an account in India is entirely legal if the account is reported annually to the IRS. Foreign bank and investment accounts must be reported each year on a Report of Foreign Bank and Financial Accounts, also known as an FBAR or form TD 90-22.1. Failure to file an FBAR is a felony.
Prosecutors say that in an effort to conceal his identity, Gupta had some 17 different bank accounts, several in nominee format. Opening an account in a false name or deliberately concealing one’s identity by opening an account in a third party name is considered an affirmative act of tax evasion.
Prosecutors say the tax loss caused by Gupta’s activities was somewhere between $200,000 and $400,000. As part of his plea deal, Gupta agreed to pay the IRS a $259,000 penalty. The judge can impose an additional fine of $250,000 or an amount of his twice the gain from his illegal activity at the time of sentencing.
There is no word on how Gupta was caught.
In recent years, the IRS has been targeting foreign banks and bankers to get the names of U.S. clients. As Gupta discovered, opening an account in a fake name doesn’t always work. Beginning next year, the new FATCA law will require foreign banks to investigate and report any account holder with ties to the United States.
The IRS’ whistleblower program has also resulted in many people getting caught. Disgruntled employees, unhappy vendors and often jilted lovers provide the information which leads to the discovery of unreported foreign accounts.
There is an amnesty that allows those with unreported accounts to come into compliance and avoid audit and criminal prosecution. (The Offshore Voluntary Disclosure Program often called “OVDI”) The program does have a catch; there are some fairly steep penalties and also the need to come into compliance before getting caught. If the IRS finds you first or gets your name from a foreign bank, amnesty is off the table.
For those whose noncompliance is truly one of mistake or ignorance of the law, other options may reduce or eliminate all penalties. Do nothing, however, and you could face criminal prosecution or civil penalties that are the greater of $100,000 per year or 50% of the highest account balance for each year the account was unreported.
That was a well written article. I do not agree with all of it. We have had hundreds of people from India phone us. We have never had a problem. We usually suggest that they file and then opt out. In that way they usually reduce the money that they owe to the IRS
it’s been interesting to watch the IRS and Treasury Department crack down on American taxpayers with secret offshore bank accounts. Switzerland and the Caribbean now report American account holders to the IRS. Then the IRS cross correlates that information with FinCEN 114, still called FBAR, Schedule B, Interest and Ordinary Dividends, and Form 8938, Statement of Specified Foreign Assets, to look for taxable interest and income. FinCEN is the Financial Crimes Enforcement Network, setting an ominous tone for their OVDI program (Offshore Voluntary Disclosure Initiative).
ReplyDeleteFinCen 114 (FBAR)
Any American person with signature access to foreign bank accounts with an aggregate balance, at anytime of the calendar year, exceeding $10,000 must e-file FinCen 114 (FBAR) through the Treasury Department’s Bank Secrecy Act system by June 30th of the following year. The penalty is $10,000 if you don’t. In addition you report the same bank account on IRS Schedule B, Interest and Ordinary Dividends, on Part III, line 7a. Many of the Folks who must file aren’t even expats. So FBAR is often a retroactive surprise with significant consequences.
OVDI (Offshore Voluntary Disclosure Initiative)
If you haven’t filed FBARs you’ve stepped in a tax compliance mud hole. OVDI is an application to the criminal arm of the IRS, where you essentially come clean for the seven retro tax years. Here’s a case of mine that finally closed two years after filing. The client was a foreign national who happened to be born in the US. He grew up in the other country and eventually opened up a no interest checking account. Once his wife was expecting, he looked into his US citizenship to ascertain the benefits to his child. The following is a strong statement of America’s allure. I filed seven years of back taxes all showing $0 due. I filed seven years of FBARs. He paid a 5% fine (the best possible outcome at that time) on his highest bank balance. But many OVDI applicants must amend those tax returns to include interest and other income from their foreign assets. And then pay the additional tax and penalties plus a 27%+ fine.
Now the IRS requires pre-screening of OVDI candidates. If they suspect criminal activity you can’t apply. Heated debate about opting out of OVDI and soft disclosures still occur between expatCPA(s).
Form 8938, Statement of Specified Foreign Assets
Here you report foreign bank accounts and other foreign assets if:
Your total foreign assets at the end of the calendar year exceeded $50,000.
Your aggregate foreign assets exceeded $75,ooo at any time of the calendar year