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December 31, 2011

IRS Uses John Does Summons to Catch Taxpayers Not Paying Taxes

 With anormal summons, the IRS seeks information about a specific taxpayer whose identity it knows. A John Doe summons allows the IRS to get the names of all taxpayers in a certain group. The IRS needs a judge to approve it, but recent IRS success may to lead to more.

A federal judge recently gave the IRS permission to serve a John Doe summons on California’s State Board of Equalization. The IRS wants names of Californians who gifted real property to their children or grandchildren between 2005 and 2010. The IRS believes many failed to file federal gift tax returns reporting family transfers. It’s not just Californians in the crosshairs. The IRS has already received information about intra-family property transfers from county and state officials in other states.

The IRS is using the  John Does summons to force foreign banks doing business in the US to reveal information on their US depositors with accounts outside the US.  Its use in the future may include other businesses doing business in the US which can provide the IRS with information about US taxpayers assets abroad.

December 30, 2011

Final Form 8938- Statement of Foreign Financial Assets Released

US Taxpayers including US Citizens, US Permanent Residents, and US Expatriates  may have to file Form 8938 with their US Income tax returns for 2012 to report their foreign financial assets.  The estimated time to complete this form is 1 to 3 hours.

Every taxpayer with assets located outside the US should review the instructions to this form to determine if they must file it. Read the Instructions to Form 8938 here.   Failure to file the Form 8938 when required can result in severe monetary penalties and criminal prosecution.

View the 2012 tax  year Form 8938  here.

FATCA Produces Fear Among US Expatriates and Foreign Banks

US Expatriates living Abroad and Foreign Financial Institutions are all in fear of the "sledge hammer" rules they must comply with in order to satisfy the IRS reporting rules on accounts owned by US taxpayers.  Some foreign banks are refusing to open bank accounts for US taxpayers in order to avoid having to comply with the extensive FATCA report rules.

 US taxpayers with sufficient foreign assets will have to start filing form 8938 with their 2012 tax returns which could take up to three hours to complete. That new form is in addition to the existing foreign assets reporting forms which must be filed which include Forms TDF 90-22.1, 5471, 8865, 3520, etc.

Taxpayers and financial institutions that fail to comply with the foreign assets tax reporting rules face severe monetary penalties and possible criminal prosecution.  We can help you avoid these dire consequences.

Read more  in  this New York Times Article

December 21, 2011

Many Expats may be able to Reduce the Taxes Owed the IRS

Many taxpayers who owe back taxes, or are now filing a lot of past year tax returns want to know how to "make a deal" with the IRS for a lower amount than the taxes, interest and penalties the IRS shows due. Essentially this can only be done by filing an "Offer in Compromise."  Most recently the IRS is only accepting less than 20 % of the Offers in Compromises filed with it.  Essentially to qualify you must show due to age, illness, etc. that you have limited prospects of making enough money to pay your past unpaid tax bills and in that event pay the IRS the current value of most of your assets.

If IRS does not accept your offer in compromise, you can enter into a payment plan to pay your tax bill over time.  If you cannot make any payments at this time, they may put their collection action on hold for a while in hopes that you will have sufficient funds to make payments later.  They will file a tax lien which does mess up your credit. The good news is most tax liens expire in ten year and the IRS has in the past not taken any action to extend that time.  Let us know if you need help dealing with the the IRS collection department or trying for an offer in compromise.

Be aware that most of the Companies on TV that advertise they can reduce the amount owed the IRS will take an advance payment of $4,000 to $10,000 (non-refundable) and more often than not fail to get your offer in compromise accepted.  You should deal with reputable CPAs or Attorneys if you hire someone to file one for your.

Read more about Offers in Compromise on the IRS website.

Video on how to file for an IRS Offer in Compromise 

December 15, 2011

IRS Releases Guidance on Foreign Financial Asset Reporting

The Internal Revenue Service in coming days will release a new information reporting form that taxpayers will use  starting this coming tax filing season to report specified foreign financial assets for tax year 2011.

Form 8938 (Statement of Specified Foreign Financial Assets) will be filed by taxpayers with specific types and amounts of foreign financial assets or foreign accounts. It is important for taxpayers to determine whether they are subject to this new requirement because the law imposes significant penalties for failing to comply.

The Form 8938 filing requirement was enacted in 2010 to improve tax compliance by U.S. taxpayers with offshore financial accounts. Individuals who may have to file Form 8938 are U.S. citizens and residents, nonresidents who elect to file a joint income tax return and certain nonresidents who live in a U.S. territory.
Form 8938 is required when the total value of specified foreign assets exceeds certain thresholds.  For example, a married couple living in the U.S. and filing a joint tax return would not file Form 8938 unless their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.

The thresholds for taxpayers who reside abroad are higher. For example in this case, a married couple residing abroad and filing a joint return would not file Form 8938 unless the value of specified foreign assets exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

Instructions for Form 8938 explain the thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted, and what information must be provided.

Form 8938 is not required of individuals who do not have an income tax return filing requirement.

The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR (Report of Foreign Bank and Financial Accounts).  For more go to the FBAR page on this website.

Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification.  A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed. Special statute of limitation rules apply to Form 8938, which are also explained in the instructions.

Form 8938, the form’s instructions, regulations implementing this new foreign asset reporting, and other information to help taxpayers determine if they are required to file Form 8938 can be found on the FATCA page of

See TD 9567.

December 9, 2011

IRS announces more information on "reasonable cause" excuse and elimination or reduction of FBAR (TDF 90-22.1) late filing penalties.

The IRS has issued a Fact Sheet for U.S. citizens or dual citizens residing outside the U.S. who may have been unaware of their U.S. tax and information filing obligations and are now seeking to come into compliance. The Fact Sheet outlines information about the delinquent filing of federal income tax returns and Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBARs).
Background. U.S. citizens must file a federal income tax return for any tax year in which their gross income is equal to or greater than the applicable exemption amount and standard deduction. A U.S. citizen is required to report his worldwide income on his federal income tax return—that is, all income, regardless of which country is the source of the income. Generally, a taxpayer only need to file returns going back six years.
Under Code Sec. 6651(a)(1), a taxpayer who fails to timely file their tax return is subject to a penalty equal to 5% of the unpaid tax, plus an additional 5% for each month (or fraction thereof), up to 25%. No penalty is due if no tax is due. Code Sec. 6651(a)(2) generally provides for an addition to tax in the case of any failure to pay the tax shown on any return required to be filed on its due date, unless it is shown that the failure is due to reasonable cause and not willful neglect.
The Code Sec. 6651(a)(2) penalty commences on the due date of the return, determined without regard to filing extensions and is 1/2% of the amount of tax shown on the return, plus an additional 1/2% for each month (or fraction thereof), up to 25%.
Code Sec. 6651(c)(1) provides that the failure to file penalty is reduced by the failure to pay penalty for any month where both apply.
Background on FBARs. Each U.S. person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship each calendar year by filing an FBAR with the Department of the Treasury on or before June 30th of the succeeding year.
Potential penalties for failure to file/pay. The fact sheet provided guidance on reasonable cause with respect to the reasonable cause for the failure to file or pay penalties. Generally, reasonable cause relief is granted when the taxpayer can demonstrate to the IRS that he/she exercised ordinary business care and prudence but nevertheless failed to meet the tax burden. Factors demonstrating whether or not ordinary business care and prudence were exercised include: the reasons provided for failing to meet the tax obligations; the taxpayer's compliance history; the length of time between the taxpayer's failure to meet the tax obligation and the subsequent compliance; circumstances beyond the taxpayer's control.
The facts and circumstances that the IRS considers in determining whether reasonable cause exists are: the taxpayer's education; whether the taxpayer has been previously subject to the tax; whether the taxpayer has been penalized before; whether there were recent changes in the tax forms or law that the taxpayer could not reasonably be expected to know; and the level of complexity of a tax or compliance issue.
Depending on facts and circumstances of a particular case, taxpayers may be able to establish reasonable cause if they can demonstrate that they were not aware of specific obligations to file returns or pay taxes. In addition to the failure to file and failure to pay penalties, the IRS said that other civil penalties may arise, including the accuracy-related penalty, fraud penalty and the other information reporting penalties.
Potential FBAR penalties. A taxpayer that fails to file a FBAR may be subject to either a willful or non-willful civil penalty, in the absence of reasonable cause. Generally, the civil penalty for willfully failing to file an FBAR can be up to the greater of $100,000 or 50% of the total balance of the foreign account at the time of the violation. Alternatively, non-willful violations that the IRS concludes are not due to reasonable cause are subject to a penalty of up to $10,000 per violation. No penalties are imposed if the IRS determines the violation was due to reasonable cause.
Factors weighing in favor of a determination that an FBAR violation was due to reasonable cause include reliance upon the advice of a professional tax advisor who was informed of the existence of the foreign financial account, that the unreported account was established for a legitimate purpose and there were no indications of efforts taken to intentionally conceal the reporting of income or assets, and that there was no tax deficiency (or there was a tax deficiency but the amount was de minimis) related to the unreported foreign account. Factors weighing against such a determination include whether the taxpayer's background and education indicate that he should have known of the FBAR reporting requirements, whether there was a tax deficiency related to the unreported foreign account, and whether the taxpayer failed to disclose the existence of the account to the person preparing his tax return. No single factor is determinative, the Fact Sheet said.
Although the IRS has established penalty mitigation guidelines, examiners may nevertheless determine that a penalty is not appropriate or that a lesser (or greater) penalty amount than the guidelines would otherwise provide is appropriate. In some instances, examiners may issue a warning letter rather than impose a penalty.
The Fact Sheet advises that if a taxpayer learns that he was required to file FBARs for earlier years, he should file the delinquent FBARs and attach a statement explaining why they were filed late. A taxpayer need not file FBARs that were due more than six years ago, since the statute of limitations for assessing FBAR penalties is six years from the due date of the FBAR. No penalty will be asserted if the IRS determines that the late filings were due to reasonable cause.
In addition, the Fact Sheet notes that beginning in 2012, U.S. taxpayers who have an interest in certain specified foreign financial assets with an aggregate value exceeding $50,000 must report those assets to the IRS on Form 8938 (Statement of Specified Foreign Financial Assets) with their tax return.
The Fact Sheet can be viewed on the IRS website at,,id=250788,00.html.

December 5, 2011

Surrender of your US Citizenship or Loss of Citizenship Can Eliminate Need to File US Tax Returns

We have assisted hundreds of  US expats with the surrender of their US Citizenship or Permanent Residency. If you go through the process you will never have to file a US Tax Return again.  The State Department does require that you have Citizenship in another country before they will allow you to surrender your US Citizenship.  It is a two part process.  The legal surrender at the US Embassy or consulate and the second part is filing the proper forms with the IRS.   You must file at least the last five years US Tax returns and other foreign reporting forms and pay any taxes, interest and penalties that might be due along with a Form 8854.

Read the State Department rules on citizenship surrender or loss HERE.   For assistance email us at or visit our website at 

December 2, 2011

US IRS to go easy on American residents in Canada Per the Globe & Mail

The U.S. Internal Revenue Service is poised to waive potentially massive penalties for Americans who agree to come clean and don't owe any taxes, The Globe and Mail has learned.

The new rules will be announced within weeks by the IRS, according to David Jacobson, the U.S. Ambassador to Canada, who has been swamped with complaints from anxious Canadians.

"What the IRS is saying here is that if ... you don't owe taxes to the U.S., and you file your return and they show you don't owe taxes, there aren't going to be any penalties for having filed late," Mr. Jacobson said in an interview Thursday.

Fears of a looming U.S. tax crackdown has caused a wave of angst among the roughly one million Americans living in Canada. Many of them long ago stopped filing, assuming they owed no tax.


November 30, 2011

Retirement Plans That May Be Available to Expats Abroad

As a US expatriate, you may be eligible to create a tax deductible  (for US tax purposes) retirement plan if you operate your own business abroad through your own sole proprietorship or by utilizing a US corporation or LLC.  The funds contributed are tax deductible and the earnings grow tax free until you withdraw the funds when you retire.  AN IRS EXPLANATION OF THE AVAILABLE PLANS IS HERE

It is important to keep in mind, that if you operate abroad through a sole proprietorship, in most situations you can only make a contribution to an IRA or self employed retirement plan if the net taxable profit from your business exceeds your foreign earned income exclusion (if you are taking it).  We can help you put together a US tax deductible retirement plan that will work for you.

Unless provided otherwise by a US tax treaty with the country in which you work (and there are only a few treaties that have favorable provisions) if a contribution is made to a foreign pension plan by your employer in your behalf, you must report that contribution as income on your US tax return and any earnings made on the funds in your foreign pension plan may also be immediately taxable to you.  If you have a separate account in that foreign pension plan you may also be obligated to file Forms 3520 and 3520A each year to report information on that separate account which the IRS deems a foreign trust.  Failure to file these two forms can result in extremely large penalties.

New FBAR form with Revised Instructions Just Released by IRS

The IRS just release in November a new FBAR (TDF 90-22.1) form with revised instructions which clarify some of the filing requirements and resolve some of the  open issues concerning when to file that form.

If you are filing it late (after June 30th following the end of a calendar year) the instructions still advise you to attach a reasonable late filing excuse, but fail to state whether or not  attaching that excuse will reduce the potential late filing penalty of up to $10,000 for "unwillfully" filing the form late.


November 25, 2011

How Many Wealthy People are there in the US and the World?

Private Wealth Magazine has published an article that sets worth the number of individuals in the US and the world that are worth $30 million US or more.  Surprisingly there are not as many (if there figures are correct) as you might think.  There are 62,950 in the US with 10,390 are those located in California.  That's not a lot considering there are over 300 Million residents in the USA.  There are 42,525 in Asia.


November 21, 2011

Ex-UBS banker sentenced for aiding U.S. tax evasion

A former senior UBS banker who helped the U.S. government expand its crackdown on offshore tax evasion was sentenced to five years probation on Friday for advising wealthy Americans on ways to hide their money from U.S. tax authorities. Renzo Gadola, who worked at Swiss bank UBS AG from 1995 to 2008, pleaded guilty in December to charges of conspiracy to defraud the United States. Almost immediately after his arrest on Nov. 8, 2010, Gadola started cooperating with U.S. officials, providing key insight into other bankers and Swiss financial institutions offering offshore banking services, according to prosecutors. He is currently out on bail.
U.S. authorities, who suspect tens of thousands of Americans are using Swiss banks to avoid paying billions of dollars in taxes, are conducting a widening criminal investigation into scores of Swiss banks and international banks with Swiss operations. Banks under investigation include Credit Suisse, HSBC Holdings Plc and Basler Kantonalbank, a large Swiss cantonal, or regional, bank, according to U.S. judicial sources. Cantonal banks are largely government-owned in Switzerland.
Gadola turned over the names of bankers and participated in recorded conversations with clients, according to an unsealed government document filed last week requesting leniency in his sentencing. 
The case against Gadola, an investment adviser based in Switzerland, highlighted how some bankers continued to help wealthy Americans conceal money from the Internal Revenue Service (IRS) even amid a U.S. probe into UBS that mushroomed into a major international judicial and diplomatic affair. In 2009, UBS paid $780 million to settle criminal charges from the U.S. Department of Justice that it helped thousands of wealthy Americans evade taxes. UBS ultimately agreed to disclose 4,450 client names and ended its U.S. cross-border banking business. The bank was accused by federal prosecutors of helping some 17,000 American clients with $20 billion in assets hide their accounts from the IRS.
Gadola's case involved a Mississippi client who kept $445,000 in a safe deposit box before transferring it first to UBS and then to a Basler Kantonalbank account. The unidentified client said he wanted to declare the money under a voluntary disclosure program launched by the IRS, but Gadola advised against it, arguing the money would go undetected by officials. 
Martin Lack, a former senior UBS banker, was indicted in August for selling offshore tax evasion services. Lack, a Swiss national, is a fugitive. Lack was Gadola's business partner after Gadola left UBS, and the two worked to help American clients hide money in Swiss cantonal banks following the crackdown on UBS, according to people briefed on the matter.

November 16, 2011


Investments in foreign stocks, investment companies, foreign corporations that hold investements, etc.  from a U.S. tax point of view a could be for a U.S. individual, pension fund, or trust a paperwork nightmare .  If you are thinking of investing in Foreign stocks, please remember your friends at the IRS.  Any investment gains you make will be offset by IRS penalties if you do not do the proper paperwork.  To comply with the rules and keep the the US taxes down you should be filing form 8621 each year with your tax return.

Do not buy foreign mutual funds (funds not sold in the US).  These are PFICs (“Passive Foreign Investment Companies”) and they create a metric ton of complexity and accounting expense for your U.S. income tax returns.  (This, by the way, is one of the U.S. government’s little non-tariff trade barriers, designed to discourage U.S. capital being deployed into foreign capital markets).
Remember your FBAR.  The account you open that will buy the stock will need to be reported on Form TD F 90-22.1.

Remember Form 8938.  This is the new reporting form for foreign financial assets, largely duplicating the FBAR reporting requirements.

Foreign tax credit.  Undoubtedly a tax of some kind will be imposed for the foreign country where the investment is located. This will end up on an individual return on Form 1116.   This form will allow you to take a foreign tax  credit against your US income tax paid on the investment income.

What if you die while owning foreign investments? Be sure you have a plan for simple transfer of your accounts to your heirs if you die.  The cost of probate procedures in many foreign countries  could eliminate any stock market profits you make.  If you set up a foreign trust to try to reduce those foreign estate costs, you will then have to file forms 3520 and 3520A each year to report that trust.

November 9, 2011

Expats Guide to Surviving and IRS Audit

The Chairman of Thomson Reuters China has written a guide to help expats survive IRS audits. In the past several years the IRS has hired thousands of new personnel in its International Division and the number of expatriate tax audits are increasing dramatically and will continue to increase in the future. READ THE ARTICLE HERE.

The IRS has discovered that tens of thousands of expats are taking the incorrect foreign earned income exclusion and foreign tax credits which has directly resulted in the increase in Tax Audits. Taxpayers who do their own returns on consumer tax return software often make errors on their returns due to lack of guidance. Remember all such errors may result in additional taxes due, interest and penalties which can often be very high.

  Our firm has represented hundreds of taxpayers in IRS audits with great success. Please email us if you need help. Thanks.

November 7, 2011

US Flow Through Tax Election for Your Foreign Corporation or LLC

You can make an election if you have a foreign corporation or LLC which may (depending on your individual  business circumstances) to treat that entity as a flow through entity for your US tax return. This means all profits and losses from the foreign entity flow through to you tax return. It also means you can offset any foreign taxes paid by the foreign entity against your US tax on that flow through income taking it as a foreign tax credit which will normally offset your US tax on that flow through income dollar for dollar. If the foreign tax rate is higher than your US tax rate, that will mean you will owe no US tax on that foreign entity's income on your US return.

Only certain foreign corporations or business organizations are eligible for the US flow through election. A list of the entities which are not eligible for this election are listed by country and included in the instructions for IRS Form 8832.  It is best to review this list and see what types of foreign entities will be eligible to make the flow through election if it would be beneficial to your US taxes prior to forming a foreign corporation or LLC.

You may have to talk with an International Tax Expert to determine if a flow through election will benefit your business plan.  It does avoid possibilities of double taxation (if you plan to distribute most of the income to yourself) and Controlled Foreign Corporation Subpart F rules as well as other potential US tax problems.  Most foreign attorneys and accountants who help you form your foreign business entity do not know these US tax rules.  It is often difficult after the fact to change the type of entity (depending on the foreign country in which it is formed) if you later discover that you do wish to have the income flow through to your US return.  We have helped well over a hundred expatriate business owners determining which type of foreign entity will be best for them under US tax law.

November 4, 2011


Reuters reports the Swiss government has offered to pay a $10 Billion dollar penalty to the IRS  and US Justice Department for civil penalties in connection with its alleged  co - conspirator activities which allowed US taxpayers to avoid paying taxes on their income and secret assets held abroad.  This article shows how strong the current IRS effort to get foreign bank to reveal information on their US account holders actually is.

The IRS will not accept the proposed settlement unless the names of all US depositors and details of their accounts are included in the deal.  Read More Here.

November 1, 2011

Form 8938 proposed instructions analyzed

Trusts and Estates Magazine has analyzed the proposed instructions to the 2011 Form 8938 for reporting foreign financial assets.  Read here.  The good news is if you have already filed forms 3520, 5471, 8865, 8621, 8891 , you just have to state so on the form 8938, and do not have to fill out the rest of the form.  The filing thresholds, penalties, statute of limitations, etc are set forth in this easy to read article.

October 27, 2011

US Nonresidents with Assets in the US will have their US Estates Subject to US up to 34% estate taxes

US nonresidents with certain assets located in the United States will cause their estates to have to file US Estate Tax returns on the value of their assets (with some exceptions) located in the USA. The tax is based on the Fair Market Value of their Assets and can be up to 35%. Nonresidents only get an exemption from this tax equal to the first $60,000 value of the fair market value of their assets in the US. The balance  of the estate's assets are subject to the estate tax.  Real estate which was owned by a deceased nonresident is subject to this tax.  The estate can only deduct the mortgage balance due from the fair market value if the estate agrees to report to the IRS the value an details of the decedents worldwide assets including those in Mexico.

Due to the large chunk this estate tax can take out of a nonresident's estate, it is best to do some advance planning to attempt to reduce it.  Email us if you want help. Read more about the nonresident  estate tax here

October 26, 2011

10/31/11 Last Day to Enter California Voluntary Compliance Program

Taxpayers have until Monday, October 31, to participate in California’s Voluntary Compliance Initiative 2 (VCI 2). Taxpayers who participate in VCI 2 benefit from penalty waiver and protection from criminal prosecution on underreported tax liabilities from abusive tax avoidance transactions and offshore financial arrangements.
To participate, taxpayers must provide amended returns, participation agreements, and payments to the FTB by the October 31 deadline. Extensions cannot be given. Mail postmarked and faxes received on or before October 31 will be accepted.
For more information on this program and eligibility requirements, visit the FTB’s Web site or call the VCI 2 hotline at            (888) 825-9868      .

October 25, 2011

Tax Rules for Contractors in Afghanistan, Iraq and Middle East

Foreign Earned Income Exclusion Concerns for Contractors in Iraq and Afghanistan and Middle East
The IRS has issued Memorandum Number AM2009-0003 regarding the availability of the FEIE to contractors working in Iraq and Afghanistan. It states that IRS will be looking closely at contractors who claim to meet the bona fide residence test, but whose family and home are back in the US and who travel there often on leave.  Unfortunately there is not a lot of case law on the subject and the IRS rules and legislative history leave a lot of room for interpretation. However, contractors should understand the rules may have changed, and they may have to defend their claim to the FEIE.

October 22, 2011

Costa Rica Banks Will Report US Taxpayers Holdings to IRS

The Tico Times reports that in 2013, Costa Rica Banks will start reporting US Citizen Bank Accounts and holdings to the Internal Revenue Service (read article here). If this applies to your situation as a resident of Costa Rica or property owner, you should immediately begin to report all financial accounts located outside of the US using the IRS FBAR form TDF 90-22.1.  Failure to file this form each year (it is due on 6/30 following the end of each calendar year) can result in IRS penalties of $10,000 or more per year and possible criminal prosecution.

Another IRS requirement is that you report your Costa Rica Corporation, whether active or dormant, using form 5471 attached to your US tax return each year.  Some years you may also have to file form 926 also. There are no exceptions to this rule. The penalty for not filing that form is also $10,000 per year.

In most situations, these forms are just reporting forms, and do not result in any additional tax due. Best to file now to avoid bigger problems in another year when the IRS will get the lists from the Costa Rica Banks. We can help. 

October 17, 2011

Transferring You Taxable Profits Offshore to Reduce Taxes

If you are a US person or company and do business abroad, you may be able to follow Google's strategy by  setting up foreign corporations in certain low tax or no tax jurisdictions. This has  reduced their effective income tax rate to slightly more than 18% which is one half the rate paid by most US businesses. Google utilizes Ireland, The Netherlands and Bermuda to accomplish this tax reduction. Read the Bloomberg article and find out how.  Perhaps you can follow their lead.  Contact us for a mini-consultation to find out if this strategy will work for your business if you are doing business outside of the US.

October 13, 2011

Special Extended Filing Date for pre-2010 FBAR Signatory Powers IS November 1, 2011

November 1, 2011 is the deadline for persons whose relationship to foreign accounts is as signatory only (i.e., those persons who have no ownership or title interest in any foreign accounts but serve as signatory only) to file FBARs for pre-2010 years. See Notice 2011-54, 2011-29 IRB 53. Those who qualify for this extended deadline should take action to file immediately.

The problem for such signatories, of course, is that U.S. owners (title or beneficial) may have their own FBAR filing requirements and, unless the owners filed (or will file) pursuant to a voluntary disclosure (OVDI or regular (quiet or noisy)), the signatory FBARs will not match to owner FBARs.  For those U.S. taxpayer owners who decided to go forward without correcting the past, their signatories (usually family members or friends) are at risk if they choose not to file the signatory FBARs within this extended deadline.  If they file, their FBARs could be the last link in the chain in identifying the U.S. taxpayer owners who have not gotten right with the IRS and, if they don't file, they are at risk of huge penalties.   This choice is not a good one for family or friends.  Owners of the accounts should consider now getting right with the IRS (however they do so, whether by quiet or noisy disclosure) so as to mitigate the  potential damage all signatories.

October 12, 2011

Swiss Bankers Charged with Helping 180 US clients hide assets abroad

Two Julius Baer Group Ltd. (BAER) client advisers were charged with helping U.S. customers of the Zurich- based bank evade taxes, according to an indictment and a person with knowledge of the matter.
Daniela Casadei and Fabio Frazzetto conspired with more than 180 U.S. clients and others at the bank to hide at least $600 million in assets from the Internal Revenue Service, according to the indictment in federal court in New York and the person, who wasn’t authorized to speak about the matter. The indictment refers to the bank as Swiss Bank No. 1. Read more in Bloomberg

October 2, 2011

If You Failed to Enter the IRS Offshore Disclosure Program (At Risk Taxpayers)

You should immediately seek competent legal and tax advice on how best to proceed  with filing your past tax returns and IRS foreign asset reporting forms now that the September 9, 2011 deadline has passed, if you failed to enter the Program.

Most delinquent t taxpayers  that have not disclose their foreign assets, filed the special IRS Offshore Forms, or have not filed their tax returns for past years probably do not face criminal action, but may incur horrendous penalties which grow worse the longer they wait to come forward.  You alternatives are now fewer than they used to be but there are still steps you can take.

There are no clear preferable courses of action but if you talk with a professional and learn your alternatives, it will help you make a decision on planning your future course of action.  Best to talk with an  experienced  tax attorney in any event to give yourself the privacy and confidentiality of attorney-client privilege. Contact us to make an appointment for a phone or skype consultation to discuss your individual situation and create a strategy to proceed.  Offshore Disclosure Email.

To read more about the IRS General Disclosure Program click here.

October 1, 2011

The 75% Fraud Penalty (Plus Possible Prison Time)

If you get audited, and the IRS decides your tax return fraudulently understates your tax bill, you are in really big trouble. You will be hit with a penalty equal to 75% of the understatement. Plus you will be charged interest. And you could face criminal charges and possible prison time. In the next few years audits of expatriates and form 2555 (foreign earned income exclusion) will increase substantially due to recent discoveries about how many such forms were incorrect and were being filed by expats not eligible for the exclusion.
Committing tax fraud takes some work, because it goes beyond simple ignorance of the tax rules and regulations. You have to intentionally do really bad things like keep two sets of books, alter or destroy documents, hide unreported income overseas, or fail to report income from illegal activities (this is not a complete list by any stretch). Bottom line: You can't commit tax fraud without knowing it.
Anyone accused of tax fraud should hire an attorney who specializes in big-time IRS problems. A CPA or Enrolled Agent can't provide the equivalent of the attorney-client privilege, and those accused of tax fraud will need that privilege. Also, non-attorneys are not competent to deal with the criminal charges that will often go along for the ride with tax fraud cases.

September 30, 2011

IRS Releases Draft of Instructions to Form 8938- 2011 Required Tax Form to Report Foreign Financial Assets

The IRS has released draft instructions to Form 8938. Form 8938 must be filed with your 2011 income tax return to report  Foreign Financial Assets if the total value of those assets exceed a reporting thresholds. Read the draft instructions here.    What ever happened to the IRS Paperwork Reduction Act which to our knowledge was never repealed. See the current IRS draft of Form 8938.  

It is interesting to note you do not have to report your ownership of foreign real estate unless it is held in a foreign trust, corporation, etc.   At this point in time, it also appears you do not have to report any gold or other assets buried in your back yard (abroad) or held in your personal safe in your offshore villa.

These drafts are still subject to revision before the end of 2011.

September 29, 2011

US Expats Living Abroad can Get An Additional 2 month Extension of Time to File 2010 returns until December 15th.

US Expats living abroad on 4/15, get an automatic extension to file  their returns until 6/15. On June 15th  if you file Form 4868 an expat can get an additional extension until October 17th.

Now expats can secure an additional extension of time to file their return until December 15th,  if they send in a letter by October 15th requesting an additional two months of time to file their 2010 income tax return. We strongly recommend the letter be sent by certified mail return receipt since you will not hear back from the IRS unless your request is denied.  You must state the reason(s) you need the additional time in the letter.  The letter should be mailed to: Department of the Treasury , Internal Revenue Service Center, Austin, TX 73301-0215. You can read more about this additional extension request on page 4 of   IRS publication 54.

September 23, 2011

China Will Now Collect ChineseSocial Security from Foreign Workers

From October 15, expats working in mainland China will be forced to pay 11 per cent of their salaries to the government in exchange for access to benefits such as pension coverage and medical insurance.
While employees will see a significant chunk of their tax-home pay disappear, their employers are also being hit by the new tax, as companies are forced to contribute a further 37 per cent of the foreign staff’s salaries.
The move could discourage multinationals from sending foreign workers to China in the future, while employees will be concerned about another raid on their salaries. Income tax in some cities in China is already charged at 45 per cent at the top tier.
Given China’s hunger for foreign talent, especially in cities such as Shanghai, it has been quick to promote the benefits for foreign workers.

September 20, 2011

Possible FBAR Penalties That May be imposed When Opting Out of Voluntary Disclosure Program

The CPA Insider has an excellent article by Janice Eiseman on the possible FBAR penalties that might be imposed a taxpayer that chose not to participate in the 2011 Voluntary Disclosure Program or opts out and just files the forms outside of that program. It appears based on case law and IRS procedures often the penalty for non willfully failing to file can be less that the $10,000 the IRS suggests it might be. Click here to read the article.

September 19, 2011

IRS Voluntary Disclosure after 9/9/11

Standard Taxpayer IRS Voluntary Disclosure is still available after 9/9/11. 

 If you missed the 9/9/11 Deadline to enter the 2011 iRS Voluntary Disclosure Program you still can take advantage of the IRS Voluntary Disclosure Program which has always been in effect.  This procedure should be followed if  you have unfilled past tax returns and also have FBAR, Foreign Corporation, Foreign Partnership, Foreign Trust, and other special IRS forms which have not been filed in a timely manner.  The procedure described below is only available if you come forward first before the IRS discovers you have not been filing.

Read the details of the program below.

Voluntary Disclosure Practice

(1)  It is currently the practice of the IRS that a voluntary disclosure will be considered along with all other factors in the investigation in determining whether criminal prosecution will be recommended.  This voluntary disclosure practice creates no substantive or procedural rights for taxpayers, but rather is a matter of internal IRS practice, provided solely for guidance to IRS personnel.  Taxpayers cannot rely on the fact that other similarly situated taxpayers may not have been recommended for criminal prosecution.
(2)  A voluntary disclosure will not automatically guarantee immunity from  prosecution; however, a voluntary disclosure may result in prosecution not being recommended.  This practice does not apply to taxpayers with illegal source income.
(3)  A voluntary disclosure occurs when the communication is truthful, timely, complete, and when: 
a.  the taxpayer shows a willingness to cooperate (and  does in fact cooperate) with the IRS in determining his or her correct tax liability; and
b.   the taxpayer makes good faith arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable.
(4) A disclosure is timely if it is received before:
a.  the IRS has initiated a civil examination or criminal investigation of the taxpayer, or has notified the taxpayer that it intends to commence such an examination or investigation;
b.  the IRS has received information from a third party (e.g., informant, other governmental agency, or the media) alerting the IRS to the specific taxpayer’s noncompliance;
c.  the IRS has initiated a civil examination or criminal investigation which is directly related to the specific liability of the taxpayer; or
d.  the IRS has acquired information directly related to the specific liability of the taxpayer from a criminal enforcement action (e.g., search warrant, grand jury subpoena).
(5)  Any taxpayer who contacts the IRS in person or through a representative regarding voluntary disclosure will be directed to Criminal Investigation for evaluation of the disclosure.  Special agents are encouraged to consult Area Counsel, Criminal Tax on voluntary disclosure issues.

(6)  Examples of voluntary disclosures include:
a.  a letter from an attorney which encloses amended returns from a client which are complete and accurate (reporting legal source income omitted from the original returns), which offers to pay the tax, interest, and any penalties determined by the IRS to be applicable in full and which meets the timeliness standard set forth above.  This is a voluntary disclosure because all elements of (3), above are met.
b.  a disclosure made by a taxpayer of omitted income facilitated through a barter exchange after the IRS has announced that it has begun a civil compliance project targeting barter exchanges; however the IRS has not yet commenced an examination or investigation of the taxpayer or notified the taxpayer of its intention to do so.  In addition, the taxpayer files complete and accurate amended returns and makes arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable.  This is a voluntary disclosure because the civil compliance project involving barter exchanges does not yet directly relate to the specific liability of the taxpayer and  because all other elements of (3), above are met
c.  a disclosure made by a taxpayer of omitted income facilitated through a widely promoted scheme regarding which the IRS has begun a civil compliance project and already obtained information which might lead to an examination of the taxpayer; however, the IRS has not yet commenced an examination or investigation of the taxpayer or notified the taxpayer of its intent to do so.  In addition, the  taxpayer files complete and accurate returns and makes arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable.  This is a voluntary disclosure because the civil compliance project involving the scheme does not yet directly relate to the specific liability of the taxpayer and because all other elements of (3), above are met.
d.  A disclosure made by an individual who has not filed tax returns after the individual has received a notice stating that the IRS has no record of receiving a return for a particular year and inquiring into whether the taxpayer filed a return for that year.  The individual files complete and accurate returns and makes arrangements with the IRS to pay the tax, interest, and any penalties determined by the IRS to be applicable in full.  This is a voluntary disclosure because the IRS has not yet commenced an examination or investigation of the taxpayer or notified the taxpayer of its intent to do so and because all other elements of (3), above, are met.
(7) Examples of what are not voluntary disclosures include:
a.  a letter from an attorney stating his or her client, who wishes to remain anonymous, wants to resolve his or her tax liability. This is not a voluntary disclosure until the identity of the taxpayer is disclosed and all other elements of (3) above have been met.
b.  a disclosure made by a taxpayer who is under grand jury investigation.  This is not a voluntary disclosure because the taxpayer is already under criminal investigation.  The conclusion would be the same whether or not the taxpayer knew of the grand jury investigation.
c.  a disclosure made by a taxpayer, who is not currently under examination or investigation, of omitted gross receipts from a partnership, but whose partner is already under investigation for omitted income skimmed from the partnership.  This is not a voluntary disclosure because the IRS has already initiated an investigation which is directly related to the specific liability of this taxpayer.  The conclusion would be the same whether or not the taxpayer knew of the ongoing investigation.
d.  a disclosure made by a taxpayer, who is not currently under examination or investigation, of omitted constructive dividends received from a corporation which is currently  under examination.  This is not a voluntary disclosure because the IRS has already initiated an examination which is directly related to the specific liability of this taxpayer.  The conclusion would be the same whether or not the taxpayer knew of the ongoing examination.
e.  a disclosure made by a taxpayer after an employee has contacted the IRS regarding the taxpayer's double set of books.  This is not a voluntary disclosure even if no examination or investigation has yet commenced because the IRS has already been informed by the third party of the specific taxpayer's noncompliance.  The conclusion would be the same whether or not the taxpayer knew of the informant's contact with the IRS.

We can help you make a Voluntary Disclosure and provide you with the complete confidentiality and privacy of  "Attorney-client" privilege.  Do not wait until it is too late.