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

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.

The Team Approach to Tax, Financial and Estate Planning

by Lance Wallach

CPAs are the best and most qualified professionals when it comes to serving their clients needs, but they need to know when and how to coordinate with other experts.

Over the last twenty years we have worked with thousands of practitioners who have decided to add financial services to their practices. They do it for a variety of reasons, but the most common are as follows:

*They don’t want to refer their client elsewhere when they request financial services.

* They want to remain competitive.

*They want to diversify and increase their revenue as opposed to depending solely on tax and accounting revenue.

While helping these professionals add planning and investment services to their core offerings, we have found that they achieve four main benefits after doing so:

1. They are more satisfied with their work.

2. Their clients are more satisfied because they can work with someone they trust to meet financial goals.

3. Their clients give them more referrals.

4. Their incomes increase.

We believe that CPAs are the most appropriate--and perhaps the only--professionals who can provide comprehensive financial services to clients because they understand their clients' tax and financial situations. Their clients trust these practitioners to provide professional advice that is in their best interest. In fact, we believe that tax professionals have an obligation and responsibility to advise their clients, and clients expect their professionals to advise them in these important areas.

With a combination of never-ending tax reform, the Tax Code's significant and complex changes, and the market volatility we've experienced over the past few years, clients need guidance more than ever. Practitioners who provide financial planning and investment advisory services are in a position to advise and assist their clients with these issues.

Practitioners just starting out in this arena may not possess the myriad skill sets and substantive knowledge required to embark on new business ventures.

CPAs who don't have all of the necessary talent in-house may find it easier to associate themselves with strategic "partners" who can provide the proper skill sets, training, technology, support and turnkey solutions in their specialized disciplines and niches, to help identify and meet their clients' financial goals.

Adapted from "The Team Approach to Tax, Financial & Estate Planning," edited by Lance Wallach, with chapters by Katharine Gratwick Baker, Fredda Herz Brown, Dr. Stanly J. Feldman, Ira Kaplan, Joseph W. Maczuga, Roger E. Nauheimer, Roger C. Ochs, Matthew J. O'Connor, Richard Preston, Steve Riley, Carl Lloyd Sheeler, Peter Spero, Paul J. Williams, and Roger M. Winsby. Product 017235.

Lance Wallach, the National Society of Accountants Speaker of the Year, speaks and writes extensively about retirement plans, Circular 230 problems and tax reduction strategies. He speaks at more than 40 conventions annually, writes for over 50 publications, is quoted regularly in the press, and has written numerous best-selling AICPA books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Business Hot Spots. Contact him at 516.938.5007 or visit www.vebaplan.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.

Don't Give the IRS Every Last Drop

By Lance Wallach

Have you seen the commercials where certain companies advertise that they can settle an IRS debt for “pennies on the dollar”? Usually the offer is too good to be true. Besides, you never want to have the problem in the first place.

The chances of an individual being audited have approximately doubled since 2000. So you need to be careful with your tax return.

IRS officials say research has shown that tax “noncompliance” typically is highest among people who work for themselves, who deal in large amounts of cash, who don’t have taxes withheld from their pay and whose income isn’t reported separately to the IRS, such as by their employer.

Another area that IRS has been focusing on for noncompliance is S corporations. With a typical S corporation, profits or losses flow through to the individual owners, who in turn are supposed to report those items on their individual returns.

Another are that could command attention is capital gains taxes. The reason: IRS officials suspect the government is losing billions of dollars in tax revenue because many investors inflate the cost basis, or the price they originally paid for stocks and other securities, in order to report lower capital gains when the securities are sold.

There have been some significant changes in the way the IRS targets businesses for audits and how it conducts them. Audits are up this year and will continue to increase,
But the numbers are very misleading, because the IRS is getting much smarter about how it chooses returns for audit and how its examiners conduct their audits.

Over the past few years, the IRS has dramatically stepped up efforts to study specific industries, and to educate examiners about business practices, terminology, accounting methods and common industry practices. It has also identified areas of inquiry that produce audit results.

Examiners are told specifically to look for certain red flags to get at what is really going on in a business or transaction. The result: examinations are more sharply focused on potential areas that will generate increased taxes, penalties and interest. Fortunately, there is a positive side to all of this; it’s very easy to obtain a free copy of this information from the IRS.

When you have a certain medical problem, you go to a specialist. The same rule should be applied to financial problems. Always engage an accountant who specializes in your type of business. One of our long-term retirement plan clients recently retained our firm to perform a self-audit. The client, a successful businessman, was concerned when one of his colleagues was found liable for back taxes and penalties because of some mistakes by his accounting firm. Nervous that he might become an IRS target as well. Our client hired us to do an audit of his income taxes for the last three years, both personally and for his various businesses. What we found was shocking. Even though this client had used an accounting firm for his various returns, the taxes he had paid were far from what he owed. Luckily for him, it was an overpayment. This client will get a refund of almost $200,000

Now let us turn to more positive alternatives, things that you can take the initiative on.


· Cash balance plan: A cash balance plan is a retirement plan that allows large contributions for owners. The deduction for owner sometimes can exceed salary. It can be combined with a 401(k) plan.

· SEP-IRA or basic profit-sharing plan? Think K instead. Many small business owners have used a SEP-IRA or basic profit sharing plan for their retirement needs due to the simplicity and low cost of these designs. However, recent changes to the Internal Revenue Code have made these designs virtually obsolete. The K is a retirement plan for the small business owner that allows him or her to achieve: greater potential contributions; “catch up” deferrals at age 50+; increased current tax savings; plan loans up to $50,000; expand survivor benefits; complete flexibility; and low costs. Unlike SEP-IRA, a K will allow you to borrow up to 50 percent of your account balance (not to exceed $50,000) as long as you pay yourself back. And whereas a typical 401(k) plan may cost $1,000 or more to establish and perhaps more to administer each year, a K can be established and administered for a fraction of that cost.
_________________________
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/TaxHelp.html
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.

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.

Attention taxpayers who have undisclosed foreign accounts You need to consider the 2012 Offshore Voluntary Disclosure Program (OVDP)

Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution. The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts. Moreover, increasingly this information is available to the IRS under tax treaties, through submissions by whistleblowers, and will become more available under the Foreign Account Tax Compliance Act (FATCA) and Foreign Financial Asset Reporting (new IRC § 6038D).

From question 3 of Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers:

When a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice.

IR-2012-5, Jan. 9, 2012

WASHINGTON — 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 getright with us before we find you,” Shulman said. “We are following more leadsand 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.

FBAR Prosecution Warning

 (PRWEB) March 05, 2013

“For those individuals who have yet to come forward and report their foreign income, as well as the existence of their foreign accounts, the clock is ticking”.  “Individuals will face serious civil and criminal penalties as well as the possibility of criminal prosecution. If ever there was a sense of urgency, it is now!”

Over the past several years the Treasury Department has been increasing its enforcement initiatives with respect to unreported offshore income as well as its investigation of unreported foreign financial accounts.

On February 14, 2013, the U.S. Department of the Treasury announced the signing of a bilateral agreement with Switzerland to assist it with the implementation of the information reporting and withholding tax provisions, commonly known as the Foreign Account Tax Compliance Act (FATCA).

According to Acting Secretary of the Treasury, Neal S. Wolin, the announcement “marks a step forward” in the Treasury’s efforts to work with foreign governments in order to combat offshore tax evasion and to flush out those taxpayers who have decided to wait and see what happens rather than proactively addressing their compliance issues in the form of participation in the Off Shore Voluntary Disclosure Program or by taking other compliance measures.

FATCA, which was enacted by Congress in 2010, focuses on non-compliance by U.S. taxpayers who utilize foreign accounts. The bilateral agreement signed on the 14th of February is the first signed agreement and is based on the second of the two model agreements circulated by the Treasury Department.

Switzerland is one of eight countries that have either signed or initialed the intergovernmental agreement (IGA) which helps facilitate the effective and efficient implementation of FATCA and indirectly, will help weed out those individuals who were required but failed to file Foreign Bank Account Reports (FBARS). The Treasury Department is currently engaged with more than 50 countries and jurisdictions to curtail offshore tax evasion, and more signed agreements are expected to follow in the near future.

"The impact of these agreements will be immediately felt by those taxpayers who have heretofore elected not to comply with FATCA and who have failed to otherwise comply with the FBAR reporting requirements," states Verni.

The latest initiative comes on the heels of last year’s amendment to Section 6501 (e) of the Internal Revenue Code, which extends the statute of limitation for purposes of assessment from three to six years in cases where unreported offshore income exceeds $5,000.00. The stature extends the period in which the Internal Revenue Service may assess additional income tax to six years from the latter of when the return was due without regard to extension or the date the return was actually filed.

The effective date for the amendment to Section 6501 applies to all returns as long as the time period for the assessment of taxes has not expired as of March 18, 2010. Accordingly, if the income tax return was filed after March 18, 2010, or the assessment statute was still otherwise open as of that date, and more than $5,000.00 was omitted from gross income that is attributable to specified foreign financial assets, the statute remains open under Section 6501€ for a total of six years from the date the return was filed. The foregoing applies whether or not Form 8938 was filed with the taxpayer’s Form 1040.

For further information about FBAR regulations contact Lance Wallach the Expert 0516-938-5007

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.