IF YOU CREATE OR ARE A BENEFICIARY OF A FOREIGN TRUST (AND MANY FOREIGN PENSION PLANS) YOU MUST REPORT TO THE IRS OR PAY PENALTIES

General Rules

A U.S. person includes a citizen of the United States, a domestic partnership, a domestic corporation, any estate other than a foreign estate, any trust if a U.S. person exercises primary supervision over the administration of the trust or if one or more U.S. persons have the authority to control all substantial decisions of the trust, and any person that is not a foreign person.

Tax consequences can apply to U.S. persons who are treated as owners of a foreign trust and U.S. persons treated as beneficiaries of a foreign trust, and to the foreign trust itself. There can be income tax as well as transfer tax consequences that should be considered.

In addition to tax consequences, there a number of information reporting rules that can apply to a U.S. person who enters into transactions with a foreign trust or is treated as an owner of a foreign trust under the grantor trust rules of Internal Revenue Code (IRC) sections 671-679, including information reporting on Forms 3520 and 3520-A; on Form 8938, Statement of Specified Foreign Financial Assets; and on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

This page focuses on information reporting requirements on Forms 3520 and 3520-A (under IRC section 6048), as well basic income tax considerations. 

Income Tax Consequences

• U.S. owner of a foreign trust - In general, a U.S. person who is treated as the owner of a foreign trust under the grantor trust rules (IRC sections 671-679) is taxed on the income of that trust. IRC section 679 applies specifically in the context of foreign trusts and will treat as an owner of a foreign trust a U.S. person who transfers assets to a foreign trust which has or is presumed to have a U.S. beneficiary. Each U.S. owner of a foreign trust should receive a Foreign Grantor Trust Owner Statement (Form 3520-A, page 3) from the foreign trust, which includes information about the foreign trust income they must report.
   
• U.S. beneficiary of a foreign trust – In general, a U.S. beneficiary of a foreign non grantor trust will report its share of foreign trust income.  Depending on whether the U.S. beneficiary is a beneficiary of a grantor or non grantor trust, the beneficiary should receive a Foreign Grantor Trust Beneficiary Statement or a Foreign Non Grantor Trust Beneficiary Statement, which includes information about the taxability of distributions the beneficiary has received.
   
• U.S. transferor of assets to a foreign non grantor trust - IRC section 684 requires the recognition of gain on certain transfers of appreciated assets to a foreign trust by a U.S. person.

Information Reporting

Form 3520

In general, a Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts is required to be filed when a U.S. person:

• creates or transfers money or property to a foreign trust or makes a loan to a foreign trust;
• receives distributions from a foreign trust, receives the uncompensated use of property of a foreign trust, or receives a loan from a foreign trust;
• is treated as the U.S. owner of a foreign trust under the grantor trust rules; and
• receives certain large gifts or bequests from foreign persons.

The instructions for Form 3520 include more information about:

1. who must file a Form 3520;
2. when and where the Form 3520 must be filed; and 
3. possible penalties for filing the Form 3520 late or filing incomplete or inaccurate information. 

See Form 3520 filing tips below. See also Gifts from Foreign Persons for information about reporting receipts of certain large gifts or bequests from certain foreign persons.

Form 3520-A

In addition to Form 3520, U.S. persons who are treated as owners of a foreign trust under the grantor trust rules must ensure that the foreign trust timely files a complete and accurate Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner , and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries. If a foreign trust fails to file Form 3520-A, the U.S. owner must: 

1. complete and attach a substitute Form 3520-A to a timely filed Form 3520, and
2. furnish the required annual statements in order for the U.S. owner to avoid penalties for the foreign trust’s failure to file a Form 3520-A.

The instructions for Form 3520-A include more information about: 

1. who must file a Form 3520-A or ensure that a Form 3520-A is filed; 
2. when and where the Form 3520-A must be filed; and 
3. possible penalties for filing Form 3520-A late or filing incomplete or inaccurate information. The instructions for Form 3520-A and Form 3520 also provide information about filing a substitute Form 3520-A.

Exceptions to filing Forms 3520 and 3520-A

Forms 3520 and 3520-A are not required to be filed for Canadian registered retirement savings plans (RRSPs) and Canadian registered retirement income funds (RRIFs).  See Rev. Proc. 2014-55 (PDF). In addition, Forms 3520 and 3520-A are not required to be filed for certain tax-favored foreign retirement trusts or tax-favored foreign non-retirement savings trusts, provided that the U.S. owner is an “eligible individual” and the tax-favored foreign trust meets certain requirements. See Rev. Proc. 2020-17 (PDF).  Caution: These exceptions do not affect any reporting obligations that a U.S. person may have to report specified foreign financial assets on Form 8938 or any other reporting requirement, including the requirement to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

Form 3520 and Form 3520-A filing tips to avoid penalties

• Form 3520
  • File Form 3520 by the 15th day of the fourth month following the end of the U.S. person’s tax year, or April 15th for calendar year taxpayers, subject to any extension of time to file that may apply. If you are a U.S. citizen or resident who lives outside the Unites States and Puerto Rico or if you are in the military or naval service on duty outside the United States and Puerto Rico, then the due date to file a Form 3520 is the 15th day of the 6th month following the end of the U.S. person’s tax year.
  • If an extension was filed with respect to your income tax return, be sure to check Form 3520, Box 1k, and enter the form number of the income tax return to avoid your Form 3520 being treated as filed late.
     
• Form 3520-A
  • File Form 3520-A using an Employer Identification Number (EIN) for the foreign trust on Line 1b of the form rather than the U.S. owner’s SSN or ITIN. If the foreign trust does not have an EIN, refer to How to Apply for an EIN.
  • File Form 3520-A by the 15th day of the 3rd month after the end of the trust’s tax year.  An automatic 6-month extension may be granted by filing Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns. Form 7004 must be filed under the foreign trust’s EIN.
  • If the foreign trust will not file a Form 3520-A, the U.S. owner of the foreign trust must file a substitute Form 3520-A by completing a Form 3520-A to the best of their ability and attaching it to a timely filed Form 3520, including extensions (see Form 3520 and Form 3520-A instructions for more information on filing a substitute Form 3520-A). Do not separately file a duplicate Form 3520-A if you are filing a substitute 3520-A.

Other Possible Filing Requirements

Form 1040, Schedule B, Part III, Foreign Accounts and Trusts, must be completed if you receive a distribution from, or were grantor of, or a transferor to a foreign trust.

If you transfer money or property to a foreign trust, you may be required to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

A foreign trust, which is not taxed as a grantor trust, may be required to file a Form 1040-NR, U.S. Nonresident Alien Income Tax Return  to pay U.S. tax on certain U.S. sourced income. See Publication 519, U.S. Tax Guide for Aliens and the instructions for Form 1040-NR for additional information.

You may be required to file Form 8938, Statement of Specified Foreign Financial Assets, to report your specified foreign financial assets if the total value of all the specified foreign financial assets in which you have an interest is more than certain reporting thresholds.

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account each year to the Internal Revenue Service by filing FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (FBAR).

If you need tax assistance with respect to foreign trust and pension plans from US Attorney and CPAs with the knowledge and expertise on these matters email us HERE

Reporting Foreign Bank and Financial Accounts, Foreign Assets on your 2018 Tax Return

You may be obligated to report your foreign financial accounts on line using form 114. Failure to do so may cause the IRS to assess penalties of $10,000 or more .... and there are also criminal penalties. Learn more in the Forbes article HERE

Also if you have other types of foreign assets such as foreign corporations, foreign partnerships, foreign LLCS, foreign bonds, stocks, etc. you may be required to file form 8938 with your tax return or incur the same type of penalties.  READ MORE HERE

These rules are complex and compliance with the law is important. We are here to help you with these forms or your entire US resident, US expatriate or US nonresident tax return. Email us at ddnelson@gmail.com . We are US CPAS and Attorneys that deal exclusively with International Tax Issues and Returns.

Expats and US Citizens Must Report on Special Forms Foreign Assets

As a US citizen (whether living abroad or not) must report foreign assets if the value exceeds certain amounts on their US Income tax return. And hopefully you know dual citizenship does not excuse you from this filing (which can  be eliminated is you surrender your US citizenship which also involves complex procedures).

The following list includes some of the more common foreign assets that may have to be reported (and if you do not file the required form you will pay huge penalties)

• foreign bank accounts
• foreign mutual funds
• foreign corporation ownership
• foreign stock brokerage accounts
  
• foreign loans
• foreign partnerships
• foreign trusts
• foreign pension plans
• foreign insurance with cash surrender value

If you own foreign real estate and it is not rented out  and title is in your own personal name it is not reportable on your personal tax return.  This may explain why so much money is laundered through  the purchase of expensive foreign real estate that sits empty much of the time.

Only some of the forms that may need to be included in your personal tax return include 5471, 8865, 8938, 114, 3520, 3520A, etc. Look them up at www.irs.gov and you are likely to decide your need professional expert help.  Write us at ddnelson@gmail.com with questions, and to request assistance or a personal consultation.  Don is a US licensed attorney and therefore under the attorney client privilege doctrine talking with him provides complete personal privacy.

IRS REPORTING REQUIREMENTS FOR THOSE WITH FOREIGN ASSETS

The Internal Revenue Service  today reminded U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2014, that they may have a U.S. tax liability and a filing requirement in 2015.

Most People Abroad Need to File

A filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the foreign earned income exclusion or the foreign tax credit , that substantially reduce or eliminate their U.S. tax liability. These tax benefits are not automatic and are only available if an eligible taxpayer files a U.S. income tax return.

The filing deadline is Monday, June 15, 2015, for U.S. citizens and resident aliens whose tax home and abode are outside the United States and Puerto Rico, and for those serving in the military outside the U.S. and Puerto Rico, on the regular due date of their tax return. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for details.

Nonresident aliens who received income from U.S. sources in 2014 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 15 depending on sources of income. See Taxation of Nonresident Aliens on IRS.gov.

Special Reporting for Foreign Accounts and Assets

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014 must file with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). It is due to the Treasury Department by June 30, 2015, must be filed electronically and is only available online through the BSA E-Filing System website. For details regarding the FBAR requirements, see Report of Foreign Bank and Financial Accounts (FBAR).

In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets.  Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

IRS Simplifies Reporting for Canadian Retirement Accounts

The IRS has eliminated a special annual reporting requirement that has long applied to taxpayers who hold interests in either of two popular Canadian retirement plans. This is part of an IRS change announced in October making it easier for taxpayers with these plans to get favorable U.S. tax treatment. As a result, many Americans and Canadians with registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) no longer need to file Form 8891 each year reporting details on these plans. This change does not affect any other reporting requirements that may apply, such as FinCEN Form 114 and Form 8938.

Report in U.S. Dollars

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.

Both Form 114 and Form 8938 require the use of a Dec. 31 exchange rate for all transactions, regardless of the actual exchange rate on the date of the transaction.  Generally, the IRS accepts any posted exchange rate that is used consistently. For more information on exchange rates, see Foreign Currency and Currency Exchange Rates.

Expatriate Reporting

Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the United States during 2014 must file a dual-status alien return, attaching Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service Philadelphia, PA 19255-0049, by the due date of the tax return (including extensions). See the instructions for this form and Notice 2009-85, Guidance for Expatriates Under Section 877A, for further details.

For more and help go to www.taxmeless.com.  Email  ddnelson@gmail.com

FATCA, FBAR, 8938 and Foreign Financial Asset Reporting Seminar in Cabo San Lucas, Mexico on 6/21/13

FATCA and IRS Foreign Asset Reporting Seminar in Cabo San Lucas on 6/21/13 presented by Intercam and Don D. Nelson, Attorney and CPA - READ MORE

IRS, Australia and United Kingdom Engaged in Cooperative Effort to Combat Offshore Tax Evasion

The tax administrations from the United States, Australia and the United Kingdom announced today a plan to share tax information involving a multitude of trusts and companies holding assets on behalf of residents in jurisdictions throughout the world. This trend is fast spreading around the world and in a few years will be the rule in a large number of other countries.

The three nations have each acquired a substantial amount of data revealing extensive use of such entities organized in a number of jurisdictions including Singapore, the British Virgin Islands, 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.

The IRS, Australian Tax Office and HM Revenue & Customs have been working together to analyze this data and have uncovered information that may be relevant to tax administrations of other jurisdictions. Thus, they have developed a plan for sharing the data, as well as their preliminary analysis, if requested by those other tax administrations.

“This is part of a wider effort by the IRS and other tax administrations to pursue international tax evasion,” said IRS Acting Commissioner Steven T. Miller. "Our cooperative work with the United Kingdom and Australia reflects a bigger goal of leaving no safe haven for people trying to illegally evade taxes.”

There is nothing illegal about holding assets through offshore entities; however, such offshore arrangements are often used to avoid or evade tax liabilities on income represented by the principal or on the income generated by the underlying assets. In addition, advisors may be subject to civil penalties or criminal prosecution for promoting such arrangements as a means to avoid or evade tax liability or circumvent information reporting requirements.

It is expected that this multilateral cooperation and coordinated effort will allow many countries to efficiently process this information and effectively enforce any laws that may have been broken.  Increasingly, tax administrations are working together in this way to assist one another in identifying non-compliance with the tax laws.

U.S. taxpayers holding assets through offshore entities are encouraged to review their tax obligations with respect to these holdings, seek professional advice if necessary, and to participate in the IRS Offshore Voluntary Disclosure Program where appropriate.  Failure to do so may result in significant penalties and possibly criminal prosecution.

If you have a problem and need help, please email us at ddnelson@gmail.com .  We have helped hundreds of expat and domestic taxpayers come into compliance with the complex US tax reporting requirements.

FBAR (TDF 90-22.1) - When is there willful failure to file which leads to highest penalties?

The  4th District Federal Court has just held that there is willful failure to file an FBAR (TDF 90-22.1) form when you check the box "NO" on schedule B with reference to foreign bank and finanical accounts when you know you have combined highest balances in foreign accounts of $10,000 or more during the year. They stated this is sufficient showing of willfulness whether or not you know the FBAR (TDF 90-22.1) existed or was required to be filed.

If you willfully fail to file an FBAR form the penalties can be the greater of $100,000 or 50% of the highest balance in your accounts for each year. There are also criminal penalties  for willful failure to file of up to five years in Jail and a $250,000 fine.

The penalties for non-willful failure to file the Form can be $10,000 or less.

US Taxpayers Must Report Foreign Gifts Received

If you receive over $100,000 a year in foreign gifts (given to you from an individual abroad who is not a US Citizen) or over $14,375 per year in gifts from foreign corporations, partnerships, etc. you must file Form 3520 in order to avoid a possible 25% penalty being imposed by the IRS.  If you fail to file this form when receiving such gifts you also risk the IRS later claiming the gift was taxable income and attempting to collect income taxes, penalties and interest for failing to report it on your US tax return.

This form is informational and does not cause you to pay any tax on the foreign gift.  You just list certain information about the gift and file.  Many fail to file this form thinking it will cause them problems, but the problem will only arise when you fail to file it. The 3520 is filed separately from your tax return but is due on the due date of your 1040. If you can show reasonable cause the penalty for not timely filing this return may be waived by the IRS.

Reporting Foreign Financial Accounts Due Date for Form TDF 90-22.1 (FBAR) is 6/29/12 or 6/30/12

Your TDF 90-22.1  (FBAR form) where you must report to the IRS your foreign bank and financial accounts must arrive at the designated address by 6/29/12 or be filed on line no later than 6/30/12.  No extensions are allowed. You must report accounts owned by you or that you have signature authority or control over.

This form must be filed for your 2011 foreign financial accounts highest balances during 2011 exceed $10,000 US. Therefore, you need to combine these highest balances to determine if you need to file this form. Foreign financial accounts (but not limited to these) which must be on the form include:

• Bank and savings accounts
• Stock Brokerage Accounts
• Pension plans
• Cash surrender value in foreign life insurance and annuities
• Gold held by another company or person for safe keeping.

Best to file the form Certified mail with return receipt so you have proof of filing or by DHL, UPS, or Fed Exp.

If you are required to file this form, you may also be obligated to file Form 8938 with your personal US tax return.

Link to download  paperTDF 90.22.1(FBAR): http://www.irs.gov/pub/irs-pdf/f90221.pdf

Link to file TDF 90-22.1 on line: http://bsaefiling.fincen.treas.gov/Enroll_Individual.html

Potential Penalties for Not Filing or Filing Late:

The following chart highlights the civil and criminal penalties that may be asserted for not complying with the FBAR reporting and recordkeeping requirements.

Violation	Civil Penalties	Criminal Penalties	Comments
Negligent Violation	Up to $500	N/A	31 U.S.C. § 5321(a)(6)(A) 31 C.F.R. 103.57(h)
Non-Willful Violation	Up to $10,000 for each negligent violation	N/A	31 U.S.C. § 5321(a)(5)(B)
Pattern of Negligent Activity	In addition to penalty under § 5321(a)(6)(A) with respect to any such violation, not more than $50,000	N/A	31 U.S.C. 5321(a)(6)(B)
Willful - Failure to File FBAR or retain records of account	Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation.	Up to $250,000 or 5 years or both	31 U.S.C. § 5321(a)(5)(C) 31 U.S.C. § 5322(a) and 31 C.F.R. § 103.59(b) for criminal. The penalty applies to all U.S. persons.
Willful - Failure to File FBAR or retain records of account while violating certain other laws	Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation.	Up to $500,000 or 10 years or both	31 U.S.C. § 5322(b) and 31 C.F.R. § 103.59(c) for criminal The penalty applies to all U.S. persons.
Knowingly and Willfully Filing False FBAR	Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation.	$10,000 or 5 years or both	18 U.S.C. § 1001, 31 C.F.R. § 103.59(d) for criminal.  The penalty applies to all U.S. persons.
Civil and Criminal Penalties may be imposed together.  31 U.S.C. § 5321(d).

10 IRS Rules for Stress-Free Foreign Financial Accounts

See the article HERE from Forbes Magazine for these ten rules: Remember financial accounts also  include foreign pension accounts, gold held in another's  vault, foreign contracts you are collecting payments and interest on, cash surrender value of foreign life insurance, positive balances (you are owed the money) in foreign credit cards,  foreign stock broker accounts, and any other manner of foreign financial asset.  Interesting enough it does not include real estate if held in your own name.  All of these items must also be included in Form 8938 if you are required to file.

Interestingly enough foreign real estate only has to be reported as a foreign assets if you hold it in a foreign corporation, partnership, LLC, or trust.  If you hold it in your own name and do not rent it out, you do not have to tell the government anything about it.  This also holds true with respect to gold, cash, diamonds, etc. located abroad and kept in your matters or personal foreign safe.

Mitt Romney 2010 Tax Return - View it Here and See the Tax Results of His Many Foreign Holdings

Mitt Romney's 2010 tax return (203 pages)  is a study in  the various IRS Forms required to report foreign income and holdings.  It includes the following IRS forms required for various foreign items of income:

• Form 1116- Foreign Tax Credits
• Form 8865 - Foreign Partnerships
• Form 926 - Contributions to Foreign Corporations
• Form 5471- Foreign Corporation ownership
• Form 8621- Passive Foreign Investment Company Reporting

LOOK AT AND REVIEW MITT ROMNEY'S 2010 TAX RETURN HERE

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.

READ THE ARTICLE AND STATISTICS HERE

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.

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.

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.

CURRENT IRS PROGRESS COMBATING INTERNATIONAL TAX EVASION

WASHINGTON — The Internal Revenue Service continues to make strong progress in combating international tax evasion, with new details announced today showing the recently completed offshore program pushed the total number of voluntary disclosures up to 30,000 since 2009. In all, 12,000 new applications came in from the 2011 offshore program that closed last week.

The IRS also announced today it has collected $2.2 billion so far from people who participated in the 2009 program, reflecting closures of about 80 percent of the cases from the initial offshore program. On top of that, the IRS has collected an additional $500 million in taxes and interest as down payments for the 2011 program — a figure that will increase because it doesn’t yet include penalties.
“By any measure, we are in the middle of an unprecedented period for our global international tax enforcement efforts,” said IRS Commissioner Doug Shulman. “We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion.”
Global tax enforcement is a top priority at the IRS, and Shulman noted progress on multiple fronts, including ground-breaking international tax agreements and increased cooperation with other governments. In addition, the IRS and Justice Department have increased efforts involving criminal investigation of international tax evasion.
The combination of efforts helped support the 2011 Offshore Voluntary Disclosure Initiative (OVDI), which ended on Sept. 9. The 2011 effort followed the strong response to the 2009 Offshore Voluntary Disclosure Program (OVDP) that ended on Oct. 15, 2009. The programs gave U.S.taxpayers with undisclosed assets or income offshore a second chance to get compliant with the U.S. tax system, pay their fair share and avoid potential criminal charges.
The 2009 program led to about 15,000 voluntary disclosures and another 3,000 applicants who came in after the deadline, but were allowed to participate in the 2011 initiative. Beyond that, the 2011 program has generated an additional 12,000 voluntary disclosures, with some additional applications still being counted. All together from these efforts, taxpayers came forward and made 30,000 voluntary disclosures.
“My goal all along was to get people back into the U.S. tax system,” Shulman said. “Not only are we bringing people back into the U.S. tax system, we are bringing revenue into the U.S. Treasury and turning the tide against offshore tax evasion.”
In new figures announced today from the 2009 offshore program, the IRS has $2.2 billion in hand from taxes, interest and penalties representing about 80 percent of the 2009 cases that have closed. These cases come from every corner of the world, with bank accounts covering 140 countries.
The IRS is starting to work through the 2011 applications. The $500 million in payments so far from the 2011 program brings the total collected through the offshore programs to $2.7 billion.
“This dollar figure will grow in the months ahead,” Shulman said. “But just as importantly, we have changed the risk calculus. Americans now understand that if they try to hide assets overseas, the chances of being caught continue to increase.”
The financial impact can be seen in a variety of other areas beyond the 2009 and 2011 programs.

• Criminal prosecutions. People hiding assets offshore have received jail sentences running for months or years, and they have been ordered to pay hundreds of thousands and even millions of dollars.
• UBS. UBS AG, Switzerland's largest bank, agreed in 2009 to pay $780 million in fines, penalties, interest and restitution as part of a deferred prosecution agreement with the U.S. government.

The two disclosure programs provided the IRS with a wealth of information on various banks and advisors assisting people with offshore tax evasion, and the IRS will use this information to continue its international enforcement efforts.

IRS Extends 2011 Voluntary Offshore Disclosure Filing Deadline to September 9, 2011

Note: Though you may have missed the program which ended 9/9/11, you still can file all past unfiled tax returns including forms 5471, 8865, 3520, FBAR, etc., under the regular  IRS disclosure program which has always existed. Coming forward and entering this program in most situations will avoid any possible criminal prosecution and you can negotiate with the IRS to attempt to reduce the penalties they might try to impose for filing late offshore reporting tax forms.  See our website at www.taxmeless.com  to learn more about this procedure.


  If you have entered the 2011 Program, and are representing yourself, our firm can provide you with guidance and advice if you wish to continue  your self representation, or we can step in and act as your representative before the IRS.  We can also help you if you are not satisfied with your current representative. If you tax representative is an Attorney, they can provide you with the privacy and confidentiality of Attorney-Client privilege which is not available from a CPA or EA.




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 untilSeptember 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 Coordinator
600 Arch Street, Room 6404
Philadelphia, 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 Service
3651 S. I H 35 Stop 4301 AUSC
Austin, TX 78741
ATTN:  2011 Offshore Voluntary Disclosure Initiative