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  • Daugaard Forrest posted an update 4 months, 2 weeks ago

    The advisers may conclude that it would be satisfactory to simply file late FBAR returns and amend any U.S. and state or local tax returns for the omitted income. Jack Brister Some practitioners and taxpayers have favored an approach known as quiet disclosure. The taxpayer would submit the returns with any tax and interest owed and hope that the IRS never comes knocking on the door asking for the penalties. Some practitioners will even attach a “reasonable cause” letter explaining why the returns were late.

    bank or financial accounts have been affected by fluctuations in tax rules. Most importantly, the filing requirements of the Report of Foreign Bank and Financial Accounts (“FBAR”) (form TD F 90-22.1) and the Foreign Account Tax Compliance Act (“FATCA”) . Normally, no examination will be conducted with respect to an offshore voluntary disclosure, although the IRS reserves the right to conduct an examination. The normal process is to assign the voluntary disclosure to an IRS examiner to certify the accuracy and completeness of the voluntary disclosure.

    The threshold question is whether you have an annual aggregate total of foreign/offshore bank accounts, financial accounts, retirement accounts, etc. that when combined, exceed $10,000. If so, you are required to file the FBAR Form and report all of the accounts. If you’ve received a letter from your foreign bank about FATCA compliance, you have already been identified as a likely US resident and/or taxpayer and your name will soon be revealed to the IRS. The time for hiding is over – your goal should now be to make the appropriate IRS voluntary disclosure to come clean and resolve your FATCA foreign account problem. Jones has assisted taxpayers with undisclosed foreign accounts in countries around the globe, including UK, Swiss, German, French, Chinese, Malaysian, Philippines and Japanese accounts.

    His clients include those with large private wealth management accounts in Switzerland’s most notorious criminal banks – banks that are under active US criminal investigation and banks that employed account managers now under US criminal indictment. Some expats choose to ignore the situation altogether and do nothing.

    Of course they are also relieved that criminal charges are not likely. With the reporting under FATCA, the number of US taxpayers joining this compliance “club” is growing exponentially. Under this program, taxpayers who are found to be willful may submit their name to the IRS in advance of making any disclosures regarding their tax issues. The IRS will then notify the taxpayer that the taxpayer’s record is clean as far as the IRS is concerned and that the taxpayer is not under examination, nor have any foreign banks reported that the taxpayer has a bank account in that bank. If the I.R.S. has prior knowledge of the taxpayer’s failure to comply, the taxpayer will not be able to enter this relief program.

    Given the present course, it is likely that all financial institutions doing a significant portion of business in the United States will share account information with the IRS. Accordingly, the overseas protections and tax shelters formerly used to shield assets may soon become obsolete. With the increased U.S. scrutiny of offshore accounts, there has also been a greater emphasis on increased international cooperation and financial information sharing. One of the methods the U.S. is using to substantially improve international financial information reporting is through the Foreign Account Tax Compliance Act passed in 2010.

    The Foreign Account Tax Compliance Act , enacted in 2010, requires U.S. taxpayers holding foreign financial assets to report information about those assets on a new form, Form 8938. The Form 8938 must be attached to the taxpayer’s annual income tax return beginning with the 2011 tax return.

    A taxpayer who is eligible to use these Streamlined Foreign Offshore Procedures and who complies with all filing requirements is not required to pay any miscellaneous offshore penalty or failure-to-file, failure-to-pay, accuracy-related, information return or FBAR penalties. Tax returns submitted under the new Streamlined Domestic Offshore Procedures will be processed like any other return submitted to the IRS. Consequently, receipt of the returns will not be acknowledged by the IRS and the streamlined filing process will not culminate in the signing of a closing agreement with the IRS. Returns submitted under the Streamlined Offshore Procedures may still be selected for audit under the existing audit selection processes applicable to any U.S. tax return. They may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources.

    IRS Notice states that virtual currency is property for federal tax purposes and provides information on the U.S. federal tax implications of convertible virtual currency transactions. The Virtual Currency Compliance campaign will address noncompliance related to the use of virtual currency through multiple treatment streams including outreach and examinations. The compliance activities will follow the general tax principles applicable to all transactions in property, as outlined in Notice . The IRS will continue to consider and solicit taxpayer and practitioner feedback in education efforts, future guidance, and development of Practice Units. Taxpayers with unreported virtual currency transactions are urged to correct their returns as soon as practical.

    A skilled tax attorney with experience in foreign account reporting and voluntary disclosures will analyze your specific situation and provide a specific solution. After a taxpayer has completed the streamlined filing compliance procedures, he or she will be expected to comply with U.S. law for all future years and file returns according to regular filing procedures.

    The IRS is not contemplating a voluntary disclosure program specifically to address tax non-compliance involving virtual currency. Department of Justice announced the Swiss Bank Program as a path for Swiss financial institutions to resolve potential criminal liabilities.

    If you haven’t heard of it yet, you’re likely to very soon encounter another U.S. reporting requirement known asForeign Account Tax Compliance Act . In a nutshell, under FATCA, starting in 2014 foreign banks will be required to report accounts owned by US citizens directly to the IRS. It is true that there are many fine details and aspects to this law that I am not going to discuss at the moment which can impact whether or not the IRS will get hold of your information. But overall, the era of keeping the IRS in the dark with respect to funds in your foreign bank accounts is over.

    Disclosures made outside the Streamlined Domestic Offshore Program , while susceptible to uncertain civil penalties, can also limit and reduce the potential for criminal prosecution. It has now been several years since the federal government started cracking down on taxpayers who keep undisclosed foreign accounts. Congress’s passing of the FBAR and FATCA laws marked the beginning of the end of the idea of a secure secret offshore accounts.

    In my experience, such letters are generally discarded by the agent processing the return since they have no idea what to do with it. Kunal Patelcomes from a diverse background that includes IRS, Big 4 public accounting, and legal experience. He focuses almost exclusively in offshore compliance matters and has successfully brought numerous taxpayers into compliance with with U.S. tax laws concerning offshore accounts and income. U.S. persons are subject to tax on worldwide income from all sources including transactions involving virtual currency.

    Thus, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate. pay a Title 26 miscellaneous offshore penalty equal to five percent of the highest aggregate balance/value of the taxpayer’s foreign financial assets subject to that penalty during the years in the covered tax return and FBAR periods. The 2012 Offshore Voluntary Disclosure Program enables a taxpayer to become compliant with Foreign Bank Account Reporting requirements by voluntarily disclosing foreign financial accounts and undisclosed income.

    FATCA is a new information and reporting scheme for payments made to foreign financial institutions and entities. A primary goal of FATCA is to gain information on U.S. tax residents that are gaining unreported income through overseas accounts. Various countries have entered into agreements with the U.S. to implement FATCA’s information-sharing provisions. The OVDP offers taxpayers, in lieu of stiff penalties for each specific failure to disclose offshore assets, a one-year miscellaneous FBAR penalty. The penalty is calculable within a reasonable degree of certainty before entering into the program, which allows each taxpayer to gauge the total cost of resolving their offshore tax issues.

    FFIs that do not comply fully with the agreement may be required to withhold 30% on certain payments to foreign payees. Furthermore, FFIs that do not register with the IRS to agree to report information on U.S. tax resident account holders face a 30% withholding tax on certain U.S. source payments made to them. Therefore, banks located in countries that have not yet entered into FATCA agreements may already be preparing to report on their account holders to avoid the stiff withholding penalty for not cooperating with the IRS.

    The certification process is less formal than an examination and does not carry with it all the rights and legal consequences of an examination. 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. The disclosure letter serves the function of quickly apprising the IRS on whether the taxpayer qualifies for voluntary disclosure. The attachment to the offshore voluntary disclosure letter is a four-page document that must be completed for each foreign financial account over which the taxpayer has control or is the beneficial owner. Under FATCA, Foreign Financial Institutions may register with the IRS to report certain information about their account holders who are U.S. tax residents.

    There are many aspects to foreign account reporting, which we will discuss — as well as review the different options available to taxpayers. When it comes time to submit to IRS voluntary disclosure, the person must make a full submission. In other words, all unreported foreign accounts, assets, investments and income must be reported. This is true, even if the chance of the IRS finding a particular offshore account or income stream is slim, and/or the account was dormant or sleeping. Person, it does not matter whether or not you have to file a US tax return to determine if you have to file an FBAR.

    Banks that are participating in this program provide information on the U.S. persons with beneficial ownership of foreign financial accounts. This campaign will address noncompliance, involving taxpayers who are or may be beneficial owners of these accounts, through a variety of treatment streams including, but not limited to, examinations and letters.

    Despite the attractiveness of this program, there may be circumstances in which participation in the program is not advisable. In addition, after a taxpayer enters the program, it may become apparent that the taxpayer is better off submitting to the standard IRS audit procedure rather than going forward in the program. As presently structured, however, the taxpayer has to “opt in” to the OVDP in order to later “opt out.”

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