IRS Called Easy on Criminal Tax Evaders in Watchdog’s Critique

Read Article about Criminal Tax Evaders and Voluntary Disclosure Program from Bloomberg Here

US Treasury Issues New FBAR instructons In January 2012

The new instructions to Form TDF 90-22.1  (FBAR) instructs taxpayers to direct questions to  866-270-0733 (within the US)  and 313-234-6146 for  international callers.

The new instructions also include an email address for questions: FBARquestions@irs.gov.  
DOWNLOAD THE LATEST FORM AND INSTRUCTIONS HERE.

Posted on January 20, 2012 in FBAR & Form 8938 | Permalink

2011 Chinese Taxes for Expatriates Living in China

China Briefing has an excellent article stating the rules for US expatriates living in China with respect to their Chinese Income Tax Filing Requirements. The rates run for 3% to 45%.  READ MORE HERE

Of course the income taxes you pay in China can be credited against our US income tax rate, and any  excess (above the US tax amount on the same income) can be carried back 2 years and then carried over. To download our US expat tax questionnaire CLICK HERE

Taxpayer Advocate Office and IRS in vicious fight over Unfair Practices on FBAR Voluntary Offshore Disclosure Program

The Taxpayer's Advocate Office is still on the side of the Taxpayer. They are in a vicious fight with the IRS over their "bait and switch" and unfair practices in the 2009 and 2011 Voluntary Offshore Disclosure Program with respect to the FBAR (TDF 90-22.1) penalties. If they cannot agree, the dispute may go to Congress. READ MORE HERE

IRS Used "Bait and Switch" Tactics in Prior Offshore Disclosure Programs per the Taxpayer Advocate Office

This Article from  CNBC describes  the less than ethical actions (or perhaps straightforward)  of the IRS in connection with the 2009 and 2011 Voluntary Disclosure Program.  Many taxpayers paid more than they had to pay if they had not entered the program and the IRS took it!  The Taxpayer Advocate Office of the IRS whose job it is to monitor the IRS and correct problems, errors and this type of actions included this information in their report to Congress.  READ ARTICLE HERE

The IRS has announced a new Offshore Disclosure Program for 2012 and perhaps beyond which will  be mostly the same as the 2011 program with some changes which the IRS has stated they will provide further details in the next few weeks.  It is not too late to enter the program and perhaps reduce your penalties.  With proper representation by an experienced Attorney and CPA, you will be protected from the IRS "Bait and Switch."

IRS Offshore Programs Produce $4.4 Billion to Date for Nation’s Taxpayers; Offshore Voluntary Disclosure Program Reopens

 The Internal Revenue Service today reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.

The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward. For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.

“As we’ve said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”

The third offshore effort comes as Shulman also announced today the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program.  That number will grow as the IRS processes the 2011 cases.

In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures. Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDP program.

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.

For the new program, the penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.

Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations. This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax. The IRS is currently developing procedures by which these taxpayers may come into compliance with U.S. tax law. The IRS is also committed to educating all taxpayers so that they understand their U.S. tax responsibilities.

More details will be available within the next month on IRS.gov. In addition, the IRS will be updating key Frequently Asked Questions and providing additional specifics on the offshore program. 

IRS Offers in Compromise for Expatriates

Sometimes, though not often, US expatriates after filing all past returns discover the owe a large amount of  taxes penalties and interest to the IRS.  These taxes may be attributable to income earned before becoming an expatriate and living outside the USA.  These taxpayers often ask us about filing an offer in compromise.

An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability, or doing so creates a financial hardship. We consider your unique set of facts and circumstances:

• Ability to pay;
• Income;
• Expenses; and
• Asset equity.

The IRS generally approves an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time. You should explore all other payment options before submitting an offer in compromise because current statistics indicated only about 15% of thosefiled are accepted by  the IRS. The Offer in Compromise program is not for everyone. If you hire a tax professional to help you file an offer, be sure to check his or her qualifications. There are many advertisements on TV that offer this service but generally only take a large nonrefundable down payment when it is clear your offer in compromise will not be accepted by the IRS.

Make sure you are eligible

Before we can consider your offer, you must be current with all filing and payment requirements. You are not eligible if you are in an open bankruptcy proceeding.

We have help many expats file successful offers in compromise. We do not accept filings that do not have a good chance of being accepted by the IRS.

Read more about the IRS offer in compromise program HERE.

Quick Guide to 2011 Tax Rates and Other Rules

The AICPA has published a quick guide to tax rates and other specific numbers for tax year 2011.  It is a useful quick guide to calculate your potential tax liability and other specific rules.  It includes long term capital gain rates, self employment tax rates, exemptions, standard deductions, dependent deductions, etc.   Click here to view it.

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.

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

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 

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 irs.gov.

See TD 9567.

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 athttp://www.irs.gov/newsroom/article/0,,id=250788,00.html.

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 ddnelson@gmail.com or visit our website at www.TaxMeLess.com 

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.

READ MORE IN  THE GLOBE & MAIL ARTICLE HERE

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.

SEE THE FORM AND  READ THE NEW INSTRUCTIONS 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.