Jail time for failure to file TD F 90-22.1 Report of Foreign Bank and Financial Accounts

Lance Wallach

A former UBS, AG ("UBS") client from Miami Beach, Florida was sentenced to four months in federal prison for willfully failing to file a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts ("FBAR"), for the UBS account the man held with as much as $4,000,0000 in it. This information was released by the U.S. Attorney for the Southern District of Florida on July 25 2012.

The former UBS client paid a civil penalty of $2,000,000 related to the $4,000,000 high account balance stemming from tax year 2006. Additionally, the former UBS client was sentenced to four months in federal prison, three years of supervised release, 250 hours of community service and a $20,000 criminal fine.

The UBS account related to two offshore corporations owned by the man, one in the Virgin Islands and one in the Republic of Panama. These corporations opened accounts at UBS. The man was not named as the direct owner but instead he was deemed only the "beneficial owner." The accounts with UBS were opened from tax years 2005 through 2007.

It is stated that the man was aware of the obligation on the FBAR to report as he had previously filed FBARs for other offshore corporations. An FBAR is required to be filed by both U.S. citizens and residents who have a financial interest in or signatory authority over a non-U.S. financial account with a value of more than $10,000 at any point during the tax year. The $10,000 amount is an aggregation of all non-U.S. financial accounts and not just an analysis on an account-by-account basis.

The information on the former UBS client was turned over after UBS agreed in February 2009 to pay $780,000,000 under a deferred prosecution agreement to settle the claim that UBS conspired to defraud the U.S. by impeding the Internal Revenue Service ("IRS"). UBS also agreed to turn over information to the U.S. Department of Justice on 300 account holders. Google Lance Wallach for more articles on point.

A US citizen or resident that held an account with UBS or any other institution that has not filed the necessary FBARs for the last eight tax years, should immediately reach out to get help to discuss any potential issues they may have and their alternatives. Filing for amnesty and then opting out are two options that our former IRS agents have successfully done for our clients. If not done properly it can be a disaster. We suggest you use a CPA with years of prior experience with the IRS international division.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on FBAR, OVDI, IRS tax amnesty and opting-out abusive tax shelters, international tax, and estate planning.  He writes about 412(i), 419, Section79, FBAR, OVDI,  IRS tax amnesty and opting-out and captive insurance plans. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Public Radio’s All Things Considered, and others. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education’s CPA’s Guide to Life Insurance and Federal Estate and Gift Taxation, as well as the AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or lanwalla@aol.com visit www.taxadvisorexperts.com  or www.Lawyer4Audits.com.

The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

Offshore Banking

Foreign Bank Accounts

Offshore Banking is currently under great scrutiny by the US Justice department and the IRS. Offshore bank accounts and offshore income require special reporting to the US government. Owning an offshore account is not illegal, but US income taxpayers are required to declare and report any offshore bank accounts and income each year with their tax returns. The FBAR or Foreign Bank Account Report is used to report a financial interest in or authority over offshore accounts in a foreign country. The willful failure to disclose offshore accounts, or to report all of the information required on an FBAR, can result in severe civil and criminal penalties.

To Read More:http://taxadvisorexpert.com/Resources.html

IRS: Disclose Offshore Accounts or Go to Jail

Brian

That's pretty much the headline from a CNBC article on Friday. And it's true.

In 2009, 15,000 Americans came forward and admitted having foreign bank accounts. Unfortunately, Uncle Sam estimates there are some 500,000 more people hiding money offshore. Opening a bank account in another country isn't illegal. There are a whole host of reasons why people may wish to send money offshore. It only becomes illegal when you send money to a foreign country in the hopes of cheating Uncle Sam.

U.S. law makes it a felony if you fail to declare the income from foreign investments on your U.S. tax return and makes it illegal to not disclose the existence of the foreign account.

So what is a person to do? Taxpayers can do nothing and hope they don't lose the "audit lottery" (there are no winners with the IRS). Or taxpayers can come into compliance, report the account and pay the government ¼ of the highest dollar amount that was in the account. That's right, if you had an account with $200,000 in it, get out the checkbook and write a check to the IRS for $50,000.

Taxpayers wanting to take advantage of the current amnesty program (called the Offshore Voluntary Disclosure Initiative) must move quickly, however. Unlike the 2009 program, which simply said you had to apply be the deadline, the current amnesty requires that all missing forms ("FBAR's"), amended returns and payment must be made by the deadline. There is a great deal of paperwork involved with the new program, waiting until the last minute is a recipe for disaster.

Those that don't comply face prison and loss of 50% of their highest account value.

So what is the risk of getting caught? We think it is quite high.

Transparency within the international banking community is at an all time high. And the developed countries are exchanging information. That means if Germany obtains information about accounts in a Bermuda bank it will likely share that information with other countries.

The U.S. has been issuing "John Doe" subpoenas to foreign banks fishing for the names of American account holders. Countries like Germany have been bribing foreign bank officials to simply steal the information and turn it over.

Still not convinced? The IRS paid its first award under the new whistleblower program - $4.5 million to an accountant who reported his employer! If anyone, anywhere knows you have a foreign account; they may report you and keep a large percentage of what you pay.

The world suddenly got much smaller.

This is interesting article but I do not believe everything in it is correct. I have received numerous phone calls from participants in these plans and the IRS is auditing.  For the most accurate information contact: Lance Wallach at lancewallach.com or call 516-935-7346

Offshore Money, FBAR International Tax and the IRS

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     By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

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FBAR, International Tax, IRS audits be careful. IRS Offshore Voluntary Disclosure Program Reopens Do YOU have money overseas? By Lance Wallach, CLU, CHFC - Recently the Internal Revenue Service reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes.

Additionally, the IRS revealed the collection of more than $4.4 billion so far from the two previous international programs.

The Offshore Voluntary Disclosure Program (OVDP) was reopened 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 remain open indefinitely until otherwise announced.

Lance Wallach and his associates have received thousands of phone calls from concerned clients with questions about the prior programs. Some of Lance’s associates are still very busy helping people with the last program. Not a single person has been audited and most are pleased with the results and are now able to sleep easily without worrying about the IRS. According to Lance, it requires years of experience to obtain a good result from the program.

He suggests using a CPA-certified, ex-IRS agent with lots of international tax experience. While this is not a requirement to file under the program, Lance has heard many horror stories from people who have tried to file by themselves or who have used inexperienced accountants.

“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 new program is similar to the 2011 program in many ways, but it has 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 accompanies another announcement that Shulman made today, that the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program. That figure reflects 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 upfront 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 come in after the closing of the 2011 program 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.

The new program’s penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or the 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.

 Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, abusive tax shelters, financial, international tax, and estate planning.  He writes about 412(i),, 419, Section79, FBAR and captive insurance plans. He speaks at more than ten conventions annually, writes for more than 50 publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Public Radio’s “All Things Considered” and others. Lance has written numerous books including “Protecting Clients from Fraud, Incompetence and Scams,” published by John Wiley and Sons, Bisk Education’s “CPA’s Guide to Life Insurance and Federal Estate and Gift Taxation,” as well as the AICPA best-selling books, including “Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots.” He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxadvisorexpert.com.

The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

OVDI, FBAR, INTERNATIONAL TAX UPDATE: Deadlines, E-Filing Option and New IRS Form 8938

Lance Wallach
 June 15, 2012 

 American taxpayers. person with a financial interest in, or signature or other authority over, any financial account outside the U.S. must file an annual report on Treasury Form TD F 90-22.1 Report of Financial Accounts, commonly known as an “FBAR” if the aggregate value of all such accounts exceeds 10,000 at any time during the calendar year. Unlike tax returns, which may be mailed on the filing deadline and be considered timely, the FBAR for 2011 must have been received by Treasury by June 30, 2012. As summarized below, over the past year, the Financial Crimes Enforcement Network “FinCEN” has issued guidance regarding extended filing FBAR deadlines and new filing options. The Internal Revenue Service has also issued a new form Form 8938 that requires additional disclosure regarding foreign financial assets. There is now an online filing option that require only one signature. The online form and instructions provide for a more immediate means by which to ensure that the FBAR was received by the June 30 deadline. Since only one signature can be submitted on the electronic form, the e-filing process is not an option for joint filers. For filers not using the e-filing option, this form must be filed with the U.S. Department of Treasury, P.O. Box 32621, Detroit, MI, 48232-0621. The address for commercial delivery is: IRS Enterprise Computing Center, Attn: CTR Operations Mailroom, 4th Floor, 985 Michigan Avenue, Detroit, MI, 48226, contact phone number: 313-234-1062. Note that the contact phone number for courier delivery may not be used to confirm receipt of the FBAR. As clarified in the final regulations which were issued last year, the following definitions determine those individuals and entities subject to the FBAR filing obligation: 1. “United States person” is defined to mean a United States citizen or resident; an entity, including but not limited to a corporation, partnership, or limited liability company, created or organized in the United States or under the laws of the United States; and a trust or estate formed under the laws of the United States. Non-U.S. persons doing business in the United States are not required to file FBARs. 2. A “financial account” includes a savings deposit, demand deposit, checking, securities, security derivatives, debt card, prepaid credit card and any other financial instrument account, including certain insurance products and foreign pension funds. This includes an account with “a mutual fund or similar pooled fund which issues shares available to the general public that have a regular net asset value determination and regular redemptions." An equity interest in a hedge fund or private equity fund is not currently considered to be a “financial account,” though the IRS is considering this question further. A United States person having a financial interest in 25 or more foreign financial accounts, or signature or other authority over 25 or more foreign financial accounts need only provide the number of financial accounts and certain other basic information on the FBAR form. If requested in the future, detailed information concerning each account must be provided. 3. A person has a “financial interest” in an account if he has legal title or is the owner of record, regardless of whether the account is maintained for his benefit. For example, IRS guidance provides that an individual who may access a foreign financial account held on another’s behalf due to a power of attorney and who is the owner of record on the account has a “financial interest” in such account and must file the FBAR. In some cases, certain direct and indirect stockholders of corporations, partners of partnerships and persons holding voting or equity interests in other entities may be required to file FBARs with respect to foreign financial accounts of these entities. In particular, these rules apply to a United States person who owns, directly or indirectly, more than 50 percent of (a) the voting power or the total value of the shares of a corporation, (b) the interest in profits or capital of a partnership, or (c) the voting power, total value of the equity interest or assets, or interest in profits. For example, if a U.S. corporation owns 100% of a foreign company that has foreign financial accounts, the domestic corporation must file an FBAR, as must any shareholder who owns more than 50% of the voting power or total value of the shares of the U.S. Corporation. A present beneficial interest in more than 50% of the current income or more than 50% of the assets of a trust that holds a foreign financial account triggers an FBAR filing requirement by the trust beneficiary. However, a trust beneficiary does not need to file the FBAR if the trust, trustee or an agent is a United States person and files an FBAR disclosing the trust’s foreign accounts. A person with a remainder interest in a trust is not within the scope of the FBAR. It is also possible that a discretionary beneficiary of a trust may not have an FBAR filing requirement with respect to the trust. 4. “Signature authority” is defined as the power of an individual to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) with the financial institution that maintains the financial account. An individual who merely has the power to allocate assets within an account does not have “signature authority” for the purposes of the FBAR filing requirement. Note that a United States person that causes an entity to be created for the purpose of evading the FBAR requirement shall have a reportable financial interest. In addition to any applicable FBAR filing obligations, certain individual U.S. taxpayers holding specified foreign financial assets with an aggregate value exceeding $50,000 must report information about those assets on new Form 8938. Unlike the FBAR, which is filed with the Treasury separate from any other tax filings by a June 30 deadline, Form 8938 must be attached to the individual taxpayer’s annual income tax return. Higher asset thresholds apply to U.S. taxpayers who file a joint tax return or who reside abroad (see below). Form 8938 reporting applies for specified foreign financial assets in which the taxpayer has an interest in taxable years starting after March 18, 2010. For most individual taxpayers, this means they should have started filing Form 8938 with their 2011 income tax return. Individual taxpayers that hold interests in foreign financial accounts may thus need to report such accounts on at least three separate forms: their individual U.S. tax return, the FBAR and Form 8938. Individual taxpayers are encouraged to consult with their tax advisers to determine which of these or other forms may be required. The penalty for failure to file the FBAR, if non-willful, is up to $10,000. Willful failures to comply with the filing requirement incur penalties of up to $100,000 or 50% of the foreign financial account balances; criminal penalties may also apply. The IRS says willfulness can be a conscious effort to avoid learning about FBAR reporting. In its internal audit guidance, the IRS says that with hardly any diligence, a taxpayer could have learned of the FBAR filing requirements quite easily. Thus taxpayers with foreign accounts are advised to read the information the government specifies in its tax forms and instructions. A failure to follow-up on this knowledge may provide evidence of “willful blindness.” The penalty for failure to file Form 8938 is up to $10,000 for a failure to disclose the foreign financial assets and an additional $10,000 for each 30-days of non-filing after the IRS issues a notice of failure to disclose, for a maximum potential penalty of $60,000; criminal penalties may also apply. I suggest that when dealing with these very important issues, it is important to utilize a competent CPA with many years of experience in dealing with international tax. In my opinion a long-term former employee of the IRS who was in the international division would be the first step. If that CPA also was an IRS appeals Officer at sometime in his career that would be a plus. The reason for this is we have seen excellent results when a US taxpayer files for amnesty and then opts out. If this tricky procedure is done properly the US taxpayer ends up dealing with the appeals division of the IRS. When you deal with the Appeals Division of the IRS you almost always get a better deal and pay less taxes that could result in a savings of thousands of dollars. I have received a very large number of phone calls form US taxpayers who are trying to deal with some or all of these issues. Almost all of the advise they have received from CPA’s or attorney’s has been in my opinion been flawed. By filing for amnesty and then properly opting out most taxpayers will save thousands. Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, abusive tax shelters, financial, international tax, and estate planning. He writes about 412(i), 419, Section79, FBAR and captive insurance plans. He speaks at more than ten conventions annually, writes for more than 50 publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Public Radio’s “All Things Considered” and others. Lance has written numerous books including “Protecting Clients from Fraud, Incompetence and Scams,” published by John Wiley and Sons, Bisk Education’s “CPA’s Guide to Life Insurance and Federal Estate and Gift Taxation,” as well as the AICPA best-selling books, including “Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots.” He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxadvisorexpert.com. The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

IRS FBAR Voluntary Disclosure Program Updates

     By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction    Expert Witness

Call Lance Wallach at (516) 938-5007

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For years the IRS has been pursuing – the disclosure of information regarding undeclared interests of U.S. taxpayers (or those who ought to be U.S. taxpayers) in foreign financial accounts.

Lance Wallach

On June 26, 2012 the IRS released IR-2012-64/65 and updated Frequently Asked Questions (FAQs) providing updated guidance regarding the currently pending offshore voluntary disclosure program (the initial terms of the 2012 OVDP were set forth in IR-2012-5 released on January 9, 2012). The OVDP follows on the success of the 2009 Offshore Voluntary Disclosure Program (the 2009 OVDP) and the 2011 Offshore Voluntary Disclosure Initiative (the 2011 OVDI), which were announced many years after the 2003 Offshore Voluntary Compliance Initiative (OVCI) and the 2003 Offshore Credit Card Program (OCCP). Such initiatives typically offer reduced penalties in exchange for taxpayers voluntarily coming into compliance before the IRS is aware of their prior tax indiscretions. In part, the success of such initiatives often depends on the perception that they will be followed by strong government tax enforcement efforts.
Under the Bank Secrecy Act, U.S. residents or a person in and doing business in the United States must file a report with the government if they have a financial account in a foreign country with a value exceeding $10,000 at any time during the calendar year. Taxpayers comply with this law by noting the account on their income tax return and by filing Form 90-22.1, the FBAR. Willfully failing to file an FBAR can be subject to both criminal sanctions (i.e., imprisonment) and civil penalties equivalent to the greater of $100,000 or 50% of the balance in an unreported foreign account— for each year since 2004 for which an FBAR wasn’t filed.
Generally, taxpayers who have undisclosed offshore accounts or assets and meet the requirements of IRM 9.5.11.9 are eligible to apply for IRS Criminal Investigation’s Voluntary Disclosure Practice and the 2012 OVDP penalty regime. The OVDP is available to taxpayers who have both offshore and domestic issues to disclose. The Voluntary Disclosure Practice requires an accurate, and complete voluntary disclosure. Consequently, if there are undisclosed income tax liabilities from domestic sources in addition to those related to offshore accounts and assets, they must also be disclosed in the OVDP. The 2012 OVDP is patterned after the 2011 OVDI but increases the maximum “FBAR-related” penalty from 25% to 27.5% of the highest account value at any time during the most recent eight tax years. The terms of the OVDP, are subject to change at any time.
For calendar year taxpayers the voluntary disclosure period is the most recent eight tax years for which the due date has already passed. The eight-year period does not include current years for which there has not yet been non-compliance. Thus, for taxpayers who submit a voluntary disclosure prior to April 15, 2012 (or other 2011 due date under extension), the disclosure must include each of the years 2003 through 2010 in which they have undisclosed foreign accounts and/or undisclosed foreign entities. Fiscal year taxpayers must include fiscal years ending in calendar years 2003 through 2010. For taxpayers who disclose after the due date (or extended due date) for 2011, the disclosure must include 2004 through 2011. For disclosures made in successive years, any additional years for which the due date has passed must be included, but a corresponding number of years at the beginning of the period will be excluded, so that each disclosure includes an eight-year period.
For taxpayers who establish that they began filing timely, original, compliant returns that fully reported previously undisclosed offshore accounts or assets before making the voluntary disclosure, the voluntary disclosure period will begin with the eighth year preceding the most recent year for which the return filing due date has not yet passed, but will not include the compliant years.
Taxpayers under IRS criminal investigation are not eligible to participate in the OVDP. Also, if the IRS has initiated a civil examination, regardless of whether it relates to undisclosed foreign accounts or undisclosed foreign entities, the taxpayer will not be eligible to participate in the 2012 OVDP.
In 2003, following significant publicity regarding the use of foreign accounts and credit card arrangements by U.S taxpayers, the IRS offered significant penalty relief for taxpayers participating in the OVCI which coincided with strong tax enforcement efforts under the OCCP. Eligible OVCI taxpayers were required to file amended or delinquent returns for three tax years (1999-2001) but could choose to bring tax years 1996-1998 into the OVCI (and would not be examined for any earlier years). Approximately 1,321 taxpayers from 48 countries participated in the OVCI identifying approximately 400 offshore promoters. The IRS agreed to not assert any 75% civil fraud penalties and the Financial Crimes Enforcement Network (FinCEN) agreed to not assert any civil penalties for the failure to timely file a Report of Foreign Bank and Financial Accounts (FBAR).
The 2009 OVDP brought in at least 14,700 U.S. taxpayers (disclosing accounts in more than 60 countries) through the front door of IRS Criminal Investigation and untold thousands through a process of quietly amending returns and filing delinquent FBARs with the government. For eligible taxpayers who ventured through the front door, the OVDP provided the certainty of no criminal prosecution and civil penalty relief – they were required to pay back-taxes from 2003 to 2008, interest and a 20-25% penalty on the delinquent taxes. The IRS also imposed a 20% “FBAR-related” penalty equal to the highest aggregate value of the financial account between 2003 and 2008. In limited situations, the FBAR-related penalty could be reduced to 5% of the account value or $10,000 per tax year.
The 2011 OVDI, brought in an additional 12,000 eligible taxpayers who filed original and amended tax returns and agreed to make payments (or good faith arrangements to pay) for taxes, interest and accuracy-related penalties. The 2011 OVDI FBAR-related penalty framework required a 25% “FBAR-related” penalty equal to the highest value of the financial account between 2003 and 2010. Only one 25 percent offshore penalty is to be applied with respect to voluntary disclosures relating to the same financial account. The penalty may be allocated among the taxpayers with beneficial ownership making the voluntary disclosures in any way they choose. Potentially applicable penalties are identified in a series of Frequently Asked Questions available at irs.gov. Participants in the 2011 OVDI also had to pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. Subject to certain limitations, financial transactions occurring before 2003 were generally irrelevant for those participating in the OVDI.
Under the 2012 OVDP, taxpayers who are foreign residents and who were unaware they were U.S. citizens may qualify for a reduced 5% FBAR-related penalty (FAQ 52). Others qualified for the 5% penalty if they: (a) did not open or cause the account to be opened (unless the bank required that a new account be opened, rather than allowing a change in ownership of an existing account, upon the death of the owner of the account); (b) have exercised minimal, infrequent contact with the account, for example, to request the account balance, or update account-holder information such as a change in address, contact person, or email address; (c) have, except for a withdrawal closing the account and transferring the funds to an account in the United States not withdrawn more than $1,000 from the account in any year covered by the voluntary disclosure; and (d) can establish that all applicable U.S. taxes have been paid on funds deposited to the account (only account earnings have escaped U.S. taxation). For funds deposited before January 1, 1991, if no information is available to establish whether such funds were appropriately taxed, it is presumed that they were.
Taxpayers whose highest aggregate account balance (including the fair market value of assets in undisclosed offshore entities and the fair market value of any foreign assets that were either acquired with improperly untaxed funds or produced improperly untaxed income) in each of the years covered by the 2012 OVDP is less than $75,000 qualified for a 12.5% FBAR-related penalty (FAQ 53). IRS examiners have no authority to negotiate a different FBAR-related penalty.

We have received hundreds of phone calls about these situations. My suggestion is that the way to obtain the best results would be to use a former IRS international manager. He should also be a CPA. In many circumstances we have significantly reduced the taxes by applying for amnesty and then opting out. If this procedure is followed properly you end up dealing with the appeals division of the IRS. In my experience and I think most other tax experts would agree, you can bargain with the appeals officer and if you know what you are doing you usually can substantially reduce your taxes. The down side to this is most tax practioners have little or no experience with this, and will probably not obtain a good result for their client.
As I suggested using a former IRS International tax manager is usually the best way to deal with this situation. If you want even better results make sure he is also a CPA. The ideal situation would be to user a former IRS tax manager with many years experience working for the IRS.
While he was at the IRS, if he worked in the appeals division that would be a plus he should also be a CPA and understand the ramification of all the FBAR, OVDI, and amnesty problems.
If you are caught in this situation you had better get expert help as quickly as possible. This situation can even result in criminal prosecution. If handled properly the fines and penalties can be tremendously reduced.




ABOUT THE AUTHOR: Lance Wallach
Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Pulbic Radio's All Things Considered, and others. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education's CPA's Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxaudit419.com

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice. 

Small Business Retirement Plans Fuel Litigation

 

Maryland Trial Lawyer

Dolan Media Newswires                                                                                 January 


Small businesses facing audits and potentially huge tax penalties over certain types of retirement plans are filing lawsuits against those who marketed, designed and sold the plans. The 412(i) and 419(e) plans were marketed in the past several years as a way for small business owners to set up retirement or welfare benefits plans while leveraging huge tax savings, but the IRS put them on a list of abusive tax shelters and has more recently focused audits on them.
The penalties for such transactions are extremely high and can pile up quickly.
 There are business owners who owe taxes but have been assessed 2 million in penalties. The existing cases involve many types of businesses, including doctors’ offices, dental practices, grocery store owners, mortgage companies and restaurant owners. Some are trying to negotiate with the IRS. Others are not waiting. A class action has been filed and cases in several states are ongoing. The business owners claim that they were targeted by insurance companies; and their agents to purchase the plans without any disclosure that the IRS viewed the plans as abusive tax shelters. Other defendants include financial advisors who recommended the plans, accountants who failed to fill out required tax forms and law firms that drafted opinion letters legitimizing the plans, which were used as marketing tools.
A 412(i) plan is a form of defined benefit pension plan. A 419(e) plan is a similar type of health and benefits plan. Typically, these were sold to small, privately held businesses with fewer than 20 employees and several million dollars in gross revenues. What distinguished a legitimate plan from the plans at issue were the life insurance policies used to fund them. The employer would make large cash contributions in the form of insurance premiums, deducting the entire amounts. The insurance policy was designed to have a “springing cash value,” meaning that for the first 5-7 years it would have a near-zero cash value, and then spring up in value.
Just before it sprung, the owner would purchase the policy from the trust at the low cash value, thus making a tax-free transaction. After the cash value shot up, the owner could take tax-free loans against it. Meanwhile, the insurance agents collected exorbitant commissions on the premiums – 80 to 110 percent of the first year’s premium, which could exceed million.
Technically, the IRS’s problems with the plans were that the “springing cash” structure disqualified them from being 412(i) plans and that the premiums, which dwarfed any payout to a beneficiary, violated incidental death benefit rules.
Under §6707A of the Internal Revenue Code, once the IRS flags something as an abusive tax shelter, or “listed transaction,” penalties are imposed per year for each failure to disclose it. Another allegation is that businesses weren’t told that they had to file Form 8886, which discloses a listed transaction.
According to Lance Wallach of Plainview, N.Y. (516-938-5007), who testifies as an expert in cases involving the plans, the vast majority of accountants either did not file the forms for their clients or did not fill them out correctly.
Because the IRS did not begin to focus audits on these types of plans until some years after they became listed transactions, the penalties have already stacked up by the time of the audits.
Another reason plaintiffs are going to court is that there are few alternatives – the penalties are not appeasable and must be paid before filing an administrative claim for a refund.
The suits allege misrepresentation, fraud and other consumer claims. “In street language, they lied,” said Peter Losavio, a plaintiffs’ attorney in Baton Rouge, La., who is investigating several cases. So far they have had mixed results. Losavio said that the strength of an individual case would depend on the disclosures made and what the sellers knew or should have known about the risks.
In 2004, the IRS issued notices and revenue rulings indicating that the plans were listed transactions. But plaintiffs’ lawyers allege that there were earlier signs that the plans ran afoul of the tax laws, evidenced by the fact that the IRS is auditing plans that existed before 2004.
“Insurance companies were aware this was dancing a tightrope,” said William Noll, a tax attorney in Malvern, Pa. “These plans were being scrutinized by the IRS at the same time they were being promoted, but there wasn’t any disclosure of the scrutiny to unwitting customers.”
A defense attorney, who represents benefits professionals in pending lawsuits, said the main defense is that the plans complied with the regulations at the time and that “nobody can predict the future.”
An employee benefits attorney who has settled several cases against insurance companies, said that although the lost tax benefit is not recoverable, other damages include the hefty commissions – which in one of his cases amounted to 400,000 the first year – as well as the costs of handling the audit and filing amended tax returns.
Defying the individualized approach an attorney filed a class action in federal court against four insurance companies claiming that they were aware that since the 1980s the IRS had been calling the policies potentially abusive and that in 2002 the IRS gave lectures calling the plans not just abusive but “criminal.” A judge dismissed the case against one of the insurers that sold 412(i) plans.
The court said that the plaintiffs failed to show the statements made by the insurance companies were fraudulent at the time they were made, because IRS statements prior to the revenue rulings indicated that the agency may or may not take the position that the plans were abusive. The attorney, whose suit also names law firm for its opinion letters approving the plans, will appeal the dismissal to the 5th Circuit.
In a case that survived a similar motion to dismiss, a small business owner is suing Hartford Insurance to recover a “seven-figure” sum in penalties and fees paid to the IRS. A trial is expected in August.
But tax experts say the audits and penalties continue. “There’s a bit of a disconnect between what members of Congress thought they meant by suspending collection and what is happening in practice. Clients are still getting bills and threats of liens,” Wallach said. “Thousands of business owners are being hit with million-dollar-plus fines. … The audits are continuing and escalating. I just got four calls today,” he said. A bill has been introduced in Congress to make the penalties less draconian, but nobody is expecting a magic bullet.
“From what we know, Congress is looking to make the penalties more proportionate to the tax benefit received instead of a fixed amount.”

Lance Wallach can be reached at: WallachInc@gmail.com

For more information, please visit www.taxadvisorexperts.org Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, abusive tax shelters, financial, international tax, and estate planning.  He writes about 412(i), 419, Section79, FBAR, and captive insurance plans. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Public Radio’s All Things Considered, and others. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education’s CPA’s Guide to Life Insurance and Federal Estate and Gift Taxation, as well as the AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxadvisorexperts.com.

Lance Wallach
Plainview, NY 11803
Ph.: (516)938-5007
Fax: (516)938-6330 www.vebaplan.com

National Society of Accountants Speaker of The Year


The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

Report of Foreign Bank and Financial Accounts (FBAR)

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 yearly to the Internal Revenue Service by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).
The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.

Recent FBAR Guidance

On February 24, 2011, the Treasury Department published final regulations amending the FBAR regulations. These regulations became effective March 28, 2011, and apply to FBARs required to be filed with respect to foreign financial accounts maintained in calendar year 2010 and for FBARs required to be filed with respect to all subsequent calendar years. The FBAR form and instructions (PDF) have been revised to reflect the amendments made by the final regulations.
On May 31, 2011, the Financial Crimes Enforcement Network (FinCEN) issued FinCEN Notice 2011-1 (PDF), revised June 6, 2011, to provide administrative relief for certain individuals with signature authority over but no financial interest in foreign financial accounts. On February 14, 2012, FinCEN extended this relief by Notice 2012-1. The deadline to report signature authority over certain accounts has been extended to June 30, 2013 per FinCEN Notice 2012-1 (PDF), for the following individuals:

• an employee or officer of an entity under 31 CFR § 1010.350(f)(2)(i)-(v) who has signature or other authority over and no financial interest in a foreign financial account of a controlled person of the entity; or
• an employee or officer of a controlled person of an entity under 31 CFR § 1010.350(f)(2)(i)-(v) who has signature or other authority over and no financial interest in a foreign financial account of the entity, the controlled person, or another controlled person of the entity.

For purposes of FinCEN Notice 2011-1, a controlled person is a United States or foreign entity more than 50 percent owned (directly or indirectly) by an entity under 31 CFR § 1010.350(f)(2)(i)-(v).
On June 16, 2011, the IRS issued Notice 2011-54 to provide additional administrative relief for individuals with signature authority but no financial interest whose filing requirements were properly deferred under Notice 2009-62 or Notice 2010-23. The deadline to file the FBAR for these individuals was extended until November 1, 2011. This extension only applies to reports for the 2009 or earlier calendar years. This Notice did NOT extend the reporting deadline for calendar year 2010.

On June 17, 2011, FinCEN issued Notice 2011-2 (PDF) to facilitate more accurate

compliance with FBAR filing requirements. Notice 2011-2 was issued to provide administrative relief for certain officers or employees of investment advisors registered with the Securities and Exchange Commission who have signature or other authority but no financial interest in certain foreign financial accounts. On February 14, 2012, FinCEN extended this relief by Notice 2012-1. The deadline to report signature authority over certain accounts has been extended to June 30, 2013, per FinCEN Notice 2012-1 (PDF), for those specified individuals working for advisors registered with the Securities and Exchange Commission.
On Jan 9, 2012, the IRS reopened the OffshoreVoluntary Disclosure Program following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced.

Who Must File an FBAR

United States persons are required to file an FBAR if:

1. The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

United States person means United States citizens; United States residents; entities, including but not limited to, corporations, partnerships, or limited liability companies created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Exceptions to the Reporting Requirement

Exceptions to the FBAR reporting requirements can be found in the FBAR instructions. There are filing exceptions for the following United States persons or foreign financial accounts:

1. Certain foreign financial accounts jointly owned by spouses;
2. United States persons included in a consolidated FBAR;
3. Correspondent/nostro accounts;
4. Foreign financial accounts owned by a governmental entity;
5. Foreign financial accounts owned by an international financial institution;
6. IRA owners and beneficiaries;
7. Participants in and beneficiaries of tax-qualified retirement plans;
8. Certain individuals with signature authority over but no financial interest in a foreign financial account;
9. Trust beneficiaries; and
10. Foreign financial accounts maintained on a United States military banking facility.

Look to the FBAR instructions to determine eligibility for an exception and to review exception requirements.

Reporting and Filing Information

A person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. Checking the appropriate block on FBAR-related federal tax return or information return questions (for example, on Schedule B of Form 1040,

the "Other Information" section of Form 1041, Schedule B of Form 1065, and Schedule N of Form 1120) and filing the FBAR, satisfies the account holder's reporting obligation.
The FBAR is not filed with the filer's federal income tax return. The granting, by the IRS, of an extension to file federal income tax returns does not extend the due date for filing an FBAR. You may not request an extension for filing the FBAR. The FBAR is an annual report and must be received by the Department of the Treasury in Detroit, MI, at one of the two addresses below, on or before June 30th of the year following the calendar year being reported.
File by mailing the FBAR to:

United States Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621

If an express delivery service is required for a timely filed FBAR, address the parcel to:

IRS Enterprise Computing Center
ATTN: CTR Operations Mailroom, 4th Floor
985 Michigan Avenue
Detroit, MI 48226

Delivery messenger service contact telephone number: (313) 234-1062
Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties, or both.

Electronic Filing for FBAR Forms

On July 18, 2011, FinCEN announced that it has developed an electronic filing system that will accept the FBAR form. E-filing is a quick and secure way for individuals to file FBARs. Filers will receive an acknowledgement of each submission. For more information about FBAR e-filing, read the FinCEN news release.

New Reporting Requirements by U.S. Taxpayers Holding Foreign Financial Assets (Form 8938)

Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayers requirement to file FBAR. A chart providing a comparison of Form 8938 and FBAR requirements, and other information to help taxpayers determine if they are required to file Form 8938, may be accessed from the IRS Foreign Account Tax Compliance Act Web page.

FBAR Assistance

Help in completing Form TD F 90-22.1 (PDF) is available Monday - Friday, 8 a.m. to 4:30 p.m. Eastern time, at 866-270-0733 (toll-free inside the U.S.) or 313-234-6146 (not toll-free, for callers outside the U.S.). The form is available online at IRS.gov and Financial Crimes Enforcement Network Web site or by telephone at 800-829-3676. Questions regarding the

 For the assistance contact Lance Wallach at lancewallach.com or call 516-935-7346

IRS FBAR Voluntary Disclosure Program Updates

Lance Wallach

For years the IRS has been pursuing – the disclosure of information regarding undeclared interests of U.S. taxpayers (or those who ought to be U.S. taxpayers) in foreign financial accounts. On June 26, 2012 the IRS released IR-2012-64/65 and updated Frequently Asked Questions (FAQs) providing updated guidance regarding the currently pending offshore voluntary disclosure program (the initial terms of the 2012 OVDP were set forth in IR-2012-5 released on January 9, 2012). The OVDP follows on the success of the 2009 Offshore Voluntary Disclosure Program (the 2009 OVDP) and the 2011 Offshore Voluntary Disclosure Initiative (the 2011 OVDI), which were announced many years after the 2003 Offshore Voluntary Compliance Initiative (OVCI) and the 2003 Offshore Credit Card Program (OCCP). Such initiatives typically offer reduced penalties in exchange for taxpayers voluntarily coming into compliance before the IRS is aware of their prior tax indiscretions. In part, the success of such initiatives often depends on the perception that they will be followed by strong government tax enforcement efforts.
Under the Bank Secrecy Act, U.S. residents or a person in and doing business in the United States must file a report with the government if they have a financial account in a foreign country with a value exceeding $10,000 at any time during the calendar year. Taxpayers comply with this law by noting the account on their income tax return and by filing Form 90-22.1, the FBAR. Willfully failing to file an FBAR can be subject to both criminal sanctions (i.e., imprisonment) and civil penalties equivalent to the greater of $100,000 or 50% of the balance in an unreported foreign account— for each year since 2004 for which an FBAR wasn’t filed.
Generally, taxpayers who have undisclosed offshore accounts or assets and meet the requirements of IRM 9.5.11.9 are eligible to apply for IRS Criminal Investigation’s Voluntary Disclosure Practice and the 2012 OVDP penalty regime. The OVDP is available to taxpayers who have both offshore and domestic issues to disclose. The Voluntary Disclosure Practice requires an accurate, and complete voluntary disclosure. Consequently, if there are undisclosed income tax liabilities from domestic sources in addition to those related to offshore accounts and assets, they must also be disclosed in the OVDP. The 2012 OVDP is patterned after the 2011 OVDI but increases the maximum “FBAR-related” penalty from 25% to 27.5% of the highest account value at any time during the most recent eight tax years. The terms of the OVDP, are subject to change at any time.
For calendar year taxpayers the voluntary disclosure period is the most recent eight tax years for which the due date has already passed. The eight-year period does not include current years for which there has not yet been non-compliance. Thus, for taxpayers who submit a voluntary disclosure prior to April 15, 2012 (or other 2011 due date under extension), the disclosure must include each of the years 2003 through 2010 in which they have undisclosed foreign accounts and/or undisclosed foreign entities. Fiscal year taxpayers must include fiscal years ending in calendar years 2003 through 2010. For taxpayers who disclose after the due date (or extended due date) for 2011, the disclosure must include 2004 through 2011. For disclosures made in successive years, any additional years for which the due date has passed must be included, but a corresponding number of years at the beginning of the period will be excluded, so that each disclosure includes an eight-year period.
For taxpayers who establish that they began filing timely, original, compliant returns that fully reported previously undisclosed offshore accounts or assets before making the voluntary disclosure, the voluntary disclosure period will begin with the eighth year preceding the most recent year for which the return filing due date has not yet passed, but will not include the compliant years.
Taxpayers under IRS criminal investigation are not eligible to participate in the OVDP. Also, if the IRS has initiated a civil examination, regardless of whether it relates to undisclosed foreign accounts or undisclosed foreign entities, the taxpayer will not be eligible to participate in the 2012 OVDP.
In 2003, following significant publicity regarding the use of foreign accounts and credit card arrangements by U.S taxpayers, the IRS offered significant penalty relief for taxpayers participating in the OVCI which coincided with strong tax enforcement efforts under the OCCP. Eligible OVCI taxpayers were required to file amended or delinquent returns for three tax years (1999-2001) but could choose to bring tax years 1996-1998 into the OVCI (and would not be examined for any earlier years). Approximately 1,321 taxpayers from 48 countries participated in the OVCI identifying approximately 400 offshore promoters. The IRS agreed to not assert any 75% civil fraud penalties and the Financial Crimes Enforcement Network (FinCEN) agreed to not assert any civil penalties for the failure to timely file a Report of Foreign Bank and Financial Accounts (FBAR).
The 2009 OVDP brought in at least 14,700 U.S. taxpayers (disclosing accounts in more than 60 countries) through the front door of IRS Criminal Investigation and untold thousands through a process of quietly amending returns and filing delinquent FBARs with the government. For eligible taxpayers who ventured through the front door, the OVDP provided the certainty of no criminal prosecution and civil penalty relief – they were required to pay back-taxes from 2003 to 2008, interest and a 20-25% penalty on the delinquent taxes. The IRS also imposed a 20% “FBAR-related” penalty equal to the highest aggregate value of the financial account between 2003 and 2008. In limited situations, the FBAR-related penalty could be reduced to 5% of the account value or $10,000 per tax year.
The 2011 OVDI, brought in an additional 12,000 eligible taxpayers who filed original and amended tax returns and agreed to make payments (or good faith arrangements to pay) for taxes, interest and accuracy-related penalties. The 2011 OVDI FBAR-related penalty framework required a 25% “FBAR-related” penalty equal to the highest value of the financial account between 2003 and 2010. Only one 25 percent offshore penalty is to be applied with respect to voluntary disclosures relating to the same financial account. The penalty may be allocated among the taxpayers with beneficial ownership making the voluntary disclosures in any way they choose. Potentially applicable penalties are identified in a series of Frequently Asked Questions available at irs.gov. Participants in the 2011 OVDI also had to pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. Subject to certain limitations, financial transactions occurring before 2003 were generally irrelevant for those participating in the OVDI.
Under the 2012 OVDP, taxpayers who are foreign residents and who were unaware they were U.S. citizens may qualify for a reduced 5% FBAR-related penalty (FAQ 52). Others qualified for the 5% penalty if they: (a) did not open or cause the account to be opened (unless the bank required that a new account be opened, rather than allowing a change in ownership of an existing account, upon the death of the owner of the account); (b) have exercised minimal, infrequent contact with the account, for example, to request the account balance, or update account-holder information such as a change in address, contact person, or email address; (c) have, except for a withdrawal closing the account and transferring the funds to an account in the United States not withdrawn more than $1,000 from the account in any year covered by the voluntary disclosure; and (d) can establish that all applicable U.S. taxes have been paid on funds deposited to the account (only account earnings have escaped U.S. taxation). For funds deposited before January 1, 1991, if no information is available to establish whether such funds were appropriately taxed, it is presumed that they were.
Taxpayers whose highest aggregate account balance (including the fair market value of assets in undisclosed offshore entities and the fair market value of any foreign assets that were either acquired with improperly untaxed funds or produced improperly untaxed income) in each of the years covered by the 2012 OVDP is less than $75,000 qualified for a 12.5% FBAR-related penalty (FAQ 53). IRS examiners have no authority to negotiate a different FBAR-related penalty.

We have received hundreds of phone calls about these situations.  My suggestion is that the way to obtain the best results would be to use a former IRS international manager. He should also be a CPA. In many circumstances we have significantly reduced the taxes by applying for amnesty and then opting out. If this procedure is followed properly you end up dealing with the appeals division of the IRS. In my experience and I think most other tax experts would agree, you can bargain with the appeals officer and if you know what you are doing you usually can substantially reduce your taxes. The down side to this is most tax practioners have little or no experience with this, and will probably not obtain a good result for their client.
As I suggested using a former IRS International tax manager is usually the best way to deal with this situation. If you want even better results make sure he is also a CPA. The ideal situation would be to user a former IRS tax manager with many years experience working for the IRS.
 While he was at the IRS, if he worked in the appeals division that would be a plus he should also be a CPA and understand the ramification of all the FBAR, OVDI, and amnesty problems.
If you are caught in this situation you had better get expert help as quickly as possible. This situation can even result in criminal prosecution. If handled properly the fines and penalties can be tremendously reduced.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters. He writes about 412(i), 419, and captive insurance plans. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Pulbic Radio's All Things Considered, and others. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education's CPA's Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxaudit419.com/TaxHelp.html and www.taxlibrary.us

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

412i Tax Shelter Fraud Litigation - How It Works

Lance Wallach

 PARTIES:

Typically, these transactions will include an Insurance company, accountant, tax attorney, and a promoter (someone with an insurance background, perhaps an actuary, who knows how to structure the policy itself). These groups will use insurance brokerages and sub-agents (licensed in the various states) to sell the policies themselves. 

INSURANCE COMPANIES

AMERICAN GENERAL LIFE INSURANCE COMPANY® INDIANAPOLIS LIFE INSURANCE COMPANY®

HARTFORD LIFE AND ANNUITY INSURANCE COMPANY® PACIFIC LIFE INSURANCE COMPANY®

 BANKERS LIFE and OTHERS®?

4121iHOW THESE PLANS WORK:

In the late 1990’s, the individuals and groups above devised a scheme to sell abusive tax shelters under the auspices of Section 412(i) of the tax code. A 412(i) is a defined benefit pension plan. It provides specific retirement benefits to participants once they reach retirement and must contain assets sufficient to pay those benefits. A 412(i) plan differs from other defined benefit pension plans in that it must be funded exclusively by the purchase of individual life insurance products. To create a 412(i) plan, there must be a trust to hold the assets. The employer funds the plan by making cash contributions to the trust, and the Code allows the employer to take a tax deduction in the amount of the contributions, i.e. the entire amount.

The trust uses the contributed funds to purchase some combination of life insurance products (insurance or annuities) for the plan. As the plan participants retire, the trust will usually sell the policies for their present cash value and purchase annuities with the proceeds. The revenue stream from the annuities pays the specified retirement benefit to plan participants.

These defendants (with the aid and knowledge of the insurance companies) used the traditional structure and sold life insurance policies with excessively high premiums. The trust then uses the large cash contributions to pay high insurance premiums and the employer takes a deduction for the sum of those large contributions. As you might expect, these policies were designed with excessively high fees or “loads” which provided exorbitant commissions to the insurance companies and the agents who sold the products.

The policies that were sold were termed Springing Cash Value Policies. They had no cash value for the first 5-7 years, after which they had significant cash value. Under this scheme, after 5-7 years, and just before the cash value sprung, the participant purchases the policy from the trust for the policy’s surrender value. In theory, you have a tax free transaction.

The IRS does not recognize the tax benefit of such a plan and has repeatedly issued announcements indicating that such plans are contrary to federal tax laws and regulations.

               

I am not an attorney but I learned some of the above information from attorney’s Mr. Ford’s website.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters. He writes about 412(i), 419, and captive insurance plans. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Public Radio's All Things Considered, and others. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education's CPA's Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxaudit419.com and www.taxlibrary.us

The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

Fbar-REPORT OF FOREIGN BANK AND FINANCIAL ACCOUNTS

REPORT OF FOREIGN BANK 
AND FINANCIAL ACCOUNTS

Form
http://www.irs.gov/pub/irs-pdf/f90221.pdf

FBAR Penalty

Did you know that the the FBAR penalty is calculated not on your account earnings, but rather, on your account value? For instance, if you have an account that is worth $1,000,000, the IRS, for one year, can asses a $500,000 FBAR penalty. And for two years, the FBAR penalty could be equal to the amount of the account. You see, the IRS is not limited to just two years, the IRS could potentially assess the FBAR for 6 or more years.
So you can see the FBAR penalty can be particularly devastating. So you need great advice on how to best deal with your unique situation.
But did you know there is a way out of this jam?

This is how to beat FBAR penalties:

You need to show the IRS one or more of the following:
• you relied on the advice of a professional tax adviser who was informed of the existence of the foreign financial account.
• you had a legitimate purpose for establishing the unreported account. For instance, you opened the account because you are a dual citizen, or use the money to fund operational expenses overseas, like a rental property.
• you lacked of any intentional effort to conceal income or assets related to an unreported foreign account. So despite the non-filing of the FBAR, you took no action to hide the existence of the account.
• you don’t have an outstanding tax bill. Or whatever unreported income you have, you already amended and paid the outstanding taxes before applying for FBAR penalty abatement.
What is the process for abating and avoiding penalties? You may need to submit a 2012 Offshore Voluntary Disclosure Initiative, and subsequently opt-out to obtain lower penalties. In some cases however, especially where there is no unreported income, a, OVDI is not necessary. In either case, is best to speak to a qualified offshore tax attorney in order to find the right path for you.
Now when will the IRS look to asses FBAR penalties. When the following factors are present:
• you failed to disclose a foreign financial account to his or her tax return preparer. That is, you never mention the unreported earnings on your tax return.
• your background and education indicate that you should have known of the FBAR reporting requirements. For instance, if you are employed as an international banker, it will be difficult (but not impossible) to claim you did not know about the FBAR filing requirement. The truth is that many Americans do not understand that all earning earned globally are subject to US taxes. This is known as universal tax jurisdiction. You can learn about the history of Universal Tax Jurisdiction here.
• a tax deficiency related to the unreported foreign account. If you have an unreported income, be sure to pay the taxes if you are going to dispute the assessment of the FBAR penalty.
In cases where you do not think you have reasonable cause, then it is likely best to utilize the 2012 Offshore Voluntary Disclosure Initiative. Instead of opt-outing of the standardized penalty structure like someone with reasonable cause, someone without reasonable cause would agree to accepted the pre-determined penalty rate. In this case, the FBAR penalty is 27.5% of the highest account value in the last 8 years. The good news is that it is limited to a one-time application.
No doubt it is a difficult decision to make. Debating between making a full disclosure or continue to hide or something in between. And making it more difficult is that in these economic conditions, and low rates of returns, most taxpayers realize it will take several years to rebound from these penalties.

International Corporate Tax Information

To Listen now click link below:

http://www.youtube.com/user/MrLanceWallach?feature=plcp

Lance Wallach Radio Interview 

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Foreign help vowed in tax evasion Crackdown

It will soon get a lot harder to use overseas accounts to hide income and assets from the Internal Revenue Services.

More than 77.000 foreign banks, investment funds and other financial institutions have agreed to share information about U.S. account holders wit the the IRS as part of a crackdown on offshore evasion, the Treasury Department announced yesterday. 

The list includes Russian financial institutions. Russian banks had to apply directly to the IRS because the United States broke off negotiations with the Russian governments over an information-sharing agreement because of Russia's actions in the Ukraine.

Nearly 70 countries have agreed to share information from their banks as part of a U.S. law that targets Americans hiding assets overseas. Participating countries include the world's financial giants, as well as many places where Americans have traditionally hidden assets, including Switzerland, the Cayman Islands and the Bahamas.

Starting in March 2015. these financial institutions have agreed to supply the IRS with names, account numbers and balances for accounts controlled by U.S. taxpayers.

Under the law, foreign banks that don't agree to share information with the IRS face steep penalties when doing business in the United States.

The law requires American banks to withhold 30 percent of certain payments to foreign banks that don't participate in the program- a significant price for access to the world’s largest economy.

The 2010 law is known as FATCA, which stands for the Foreign Account Tax Compliance Act. It was designed to encourage- some say force- foreign financial institutions to share information about U.S. account holders with the IRS, making it more difficult for Americans to use overseas accounts to evade U.S. taxes.