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.

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

Possible Consequences of "Silent Disclosure" of Undisclosed Foreign Bank Accounts - And Failing to Enter IRS Offshore Voluntary Disclosure Program

A Boston venture capitalist and director at Boston Private Bank and Trust Company was charged with failing to report his foreign bank account and income to the Department of the Treasury. Principal Deputy Assistant Attorney General of the Department of Justice’s Tax Division John A. DiCicco, U.S. Attorney for the District of Massachusetts Carmen M. Ortiz and William P. Offord, Special Agent in Charge of the Internal Revenue Service (IRS) Criminal Investigation, Boston Division made the announcement today.

According to the criminal information and plea agreement filed today, from 2003 to 2008, Michael Schiavo, 53, of Westford, Mass., held an account in his name at HSBC Bank Bermuda (formerly the Bank of Bermuda). In 2006, with the assistance of his business partner Peter Schober, Schiavo arranged to have income from a venture capital investment directed to Schober’s secret account at UBS AG in Switzerland. From there, Schiavo’s share of the investment, $99,273, was wired to his HSBC Bank Bermuda account. Schiavo knew that this payment was taxable income in the United States, but deliberately chose not to report it, or the interest income that accrued in the HSBC Bank Bermuda account, to the IRS. In so doing, Schiavo deprived the IRS out of $40,624 in taxes.

U.S. citizens and resident aliens have an obligation to report to the IRS on the Schedule B of a U.S. Individual Income Tax Return, Form 1040, whether that individual has a financial interest in, or signature authority over, a financial account in a foreign country in a particular year by checking “Yes” or “No” in the appropriate box and identifying the country where the account was maintained. U.S. citizens and resident aliens have an obligation to report all income earned from foreign bank accounts on the tax return and to pay the taxes due on that income. These same taxpayers who have a financial interest in, or signature authority over, one or more financial accounts in a foreign country with an aggregate value of more than $10,000 at any time during a particular year are required to file with the Department of the Treasury a Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1 (the FBAR). The FBAR for the applicable year is due by June 30 of the following year.

According to the criminal information and plea agreement, on Oct. 6, 2009, following widespread media coverage of UBS’s disclosure to the IRS of account records for undeclared accounts held by U.S. taxpayers and the IRS’s Voluntary Disclosure Program, Schiavo made a “silent disclosure” by preparing and filing FBARs and amended Forms 1040 for tax years 2003 to 2008, in which he reported the existence of his previously undeclared account at HSBC Bank Bermuda. He made such filings notwithstanding the availability of the IRS’s Offshore Voluntary Disclosure Program. The Offshore Voluntary Disclosure Program was a program administered by the IRS that was intended to serve as a vehicle for U.S. taxpayers to attempt to avoid criminal prosecution by disclosing their previously undeclared offshore accounts and paying tax on the income earned in those accounts. On its website, the IRS strongly encourages taxpayers to come forward under the Offshore Voluntary Disclosure Program and warns them that taxpayers who instead make silent disclosures risk being criminally prosecuted for all applicable years.

According to the criminal information and plea agreement, Schiavo also admitted that for tax years 2003 through 2008, he willfully failed to file FBARs with the Department of the Treasury and failed to disclose that he had an interest in a financial account in HSBC Bank Bermuda. He further admitted that for tax years 2003 through 2008, he prepared, signed under penalties of perjury, and filed false individual income tax returns with the IRS that falsely represented that he did not have an interest in any foreign financial accounts. According to the plea agreement, Schiavo agreed to pay a civil money penalty of $76,283, half the value of high balance of the HSBC Bank of Bermuda account, for failing to file the FBAR.

Schiavo faces up to five years in prison, followed by three years of supervised release and a $250,000 fine. Schober was charged separately with failing to disclose his secret UBS AG bank account and is awaiting sentencing.