FBAR and U.S. Tax Reporting and Compliance Requirements...

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FBAR and U.S. Tax Reporting and

Compliance Requirements for Foreign Assets Unraveling Foreign Asset and Income Reporting Obligations,

Evaluating and Navigating the Offshore Voluntary Disclosure Program

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, MARCH 2, 2016

Presenting a live 90-minute webinar with interactive Q&A

Dennis N. Brager, Esq., Brager Tax Law Group, Los Angeles

Deborah J. Jacobs, Owner, The Law Office of Deborah J. Jacobs, New York

Asher Rubinstein, Partner, Rubinstein and Rubinstein, New York

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35.

FOR LIVE EVENT ONLY

Dennis Brager

• Ex-IRS Trial Lawyer

• State Bar Certified Tax Specialist

• 30+ Years Tax Dispute Experience with IRS, EDD, BOE, FTB Problems

• Nationally Recognized Tax Litigation Attorney

4 Copyright © 2016, Brager Tax Law Group

http://www.martindale.com/Dennis-N-Brager/135093-lawyer.htm?view=cr

Dennis Brager

Having worked for the IRS for six years, he gained valuable insight into the inner workings of that organization. This not only helps in developing the right strategies, but facilitates working with the system quickly and efficiently. Mr. Brager has limited his practice to representing clients having disputes with the IRS, the Franchise Tax Board, the State Board of Equalization and the Employment Development Department--both at trial and administrative levels.

He has appeared on ABC Television’s Good Morning America show, Fox Business News, and TV One Access. He has also spoken before the California Continuing Education of the Bar, the California Society of CPAs, the UCLA Tax Controversy Institute, the California State Bar Tax Section, the Consumer Rights Litigation Conference, the California Trial Lawyers Association, the American Bar Association, the Warner Center Estate and Tax Planning Council, and the National Association of Enrolled Agents. Dennis Brager has been an instructor at Golden Gate University's Masters in Taxation Program and a guest speaker at the University of Southern California. Mr. Brager has testified as an expert witness on Federal tax matters.

His articles have appeared in the California Lawyer, Daily Journal, Taxation for Lawyers, Los Angeles Lawyer, The Consumer Advocate, Family Law News, California Tax Lawyer, Journal of Tax Practice and Procedure, and Journal of Taxation of Investments. They include “Offshore Voluntary Disclosure – The Next Generation,” “Partial Offshore Tax Amnesty – Voluntary Disclosure 2.0,” Anatomy of an OPR Case (Definitely Not R.I.P.),” “FBAR and Voluntary Disclosure,” “The Tax Gap and Voluntary Disclosure,” “Circular 230: An Overview,” “Recent Developments in Tax Procedure,” “Damages, Rescission and Debt Cancellation as Client Income,” “Ponzi Scheme Victims May Be Able to Mitigate Losses with Tax Deduction,” “Prevailing Party-Recovering Attorneys Fees From the IRS,” “The Taxpayer Bill of Rights--A Small Step Toward Reining in the IRS,” “Challenging the IRS Requires a Cohesive Strategy,” “The Innocent Spouse Defense,” “IRS Guidelines for Installment-Payment Agreements,” “Expert Advice: New Rules on 1099 Forms,” “Tax Brakes: The Taxpayer Bill of Rights 2,” and “Expert Advice: Avoiding Payroll Taxes.”

Mr. Brager received his undergraduate degree from Pace University (B.B.A., magna cum laude, 1975, Accounting/Finance), and his law degree from New York University (J.D., 1978). He is a former chair of both the Tax Compliance, Procedure and Litigation Committee of the Los Angeles County Bar Association, and the California State Bar, Tax Procedure and Litigation Committee. He is admitted to practice before the U.S. Supreme Court, the Ninth Circuit Court of Appeals, U.S. Claims Court, U.S. Tax Court, U.S. District Court and the U.S. Bankruptcy Court.

Dennis Brager is a California State Bar Certified Tax Specialist and a former Senior Trial

Attorney for the Internal Revenue Service's Office of Chief Counsel. In addition to representing the IRS in

court, he advised the Service on complex civil and criminal tax issues. He now has his own four attorney

firm in Westwood, and has been named as a Super Lawyer in the field of Tax Litigation by Los Angeles

Magazine. He has been quoted as a tax expert, by Business Week, the Daily Journal, the National Law

Journal, The Daily Beast, USA Today, Palm Beach Daily News, Money Laundering, the Los Angeles

Daily Journal and Tax Analyst.


The Problem • U.S. Persons who have signatory authority over, or a financial interest in

an offshore account must file an FBAR- Form FINCEN 114 (formerly Form TD F 90-22.1) for accounts with combined balances over 10k U.S. dollars.

o U.S. Person = U.S. Citizen or U.S. “resident”

o Currently a resident means:

• a resident alien under IRC Section 7701(b) includes:

o Green card test

o Substantial presence test

• any entity including but not limited to, a corporation, partnership, trust, or limited liability company created, organized, or formed under the laws of the United States

o Substantial presence test may not apply prior to the issuance of latest FINCEN regulations on March 28, 2011


o Schedule B Question: At any time during 2013, did you have a

financial interest in or signature authority over a financial account

(such as a bank account, securities account, or brokerage account)

located in a foreign country? See instructions…..

• If “Yes,” are you required to file FinCEN Form 114, Report of

Foreign Bank and Financial Accounts (FBAR), formerly TD F 90-

22.1, to report that financial interest or signature authority? See

FinCEN Form 114 and its instructions for filing requirements and

exceptions to those requirements

o Checking the box that says "No", subjects a taxpayer to a possible

criminal charge of filing a false income tax return which is a felony.

The Problem (Continued)


o Criminal Title 26

o Criminal FBAR

o Civil FBAR

o Civil Title 26

Penalties Outside of

OVDP/Streamlined Programs


Criminal Penalties

• Willful Failure to File an FBAR. Up to $250,000 or 5 years in jail or

both.

• Willful failure to file an FBAR while violating another "law of the

United States" or as part of a pattern of any illegal activity involving

more than $100k in a 12 month period. Up to $500k or 10 years in

jail or both.

• Filing a false return, IRC § 7206(1). Up to three years in jail or

$100,000 or both.

• Tax Evasion. IRC § 7201. Up to $100,000 or 5 years in jail or both.

Copyright © 2016, Brager Tax Law Group 9

Civil FBAR Penalties

• Non-Willful Violation. Up to $10k for Each Violation o The IRS takes the position that if there are multiple accounts then there are

multiple violations.

• e.g. A taxpayer who has three different accounts would be liable for $30,000 of penalty each year.

o As of May 2015 IRS policy is to limit the penalty to $10,000 per open year in “most cases” without regard to the number of accounts.

o In “some cases” the “facts and circumstances” (considering the conduct of the person) may indicate that only one $10,000 will be warranted.

o In “some cases” the “facts and circumstances,” considering the conduct of the person, may indicate that a separate penalty for each account, and each year may be warranted, but in no case will the total exceed 50% of the highest aggregate balance during the years under examination.


More Civil FBAR Penalties

• Willful Failure to File. Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation.

• The penalty may be imposed for each year the account is open within the SOL. o As a matter of policy, effective May 2015, the IRS has decided that it will limit the

willfulness penalty in “most cases” to 50% of the highest balance during the examination period.

o In no event will the penalty exceed 100%

o N.B. The DOJ is not bound by the IRS’ guidelines.

• Willful Failure to keep records of the account. Any person required to file the FBAR must keep certain records of the account for five years


Civil Title 26 Penalties • Civil Fraud Penalty for Willful Failure to Report Income. 75% of the tax due.

• Accuracy Related Penalty for negligent failure to report. 20% of the tax due.

• Penalties for failure to file a Form 3520 reporting the transfer of funds to a foreign trust or receipt of a distribution from a foreign trust, which begins at 35% of the amount transferred to or received from the foreign trust.

• Penalties for failure to file a Form 3520 to report the receipt of a gift or inheritance from a foreign person or estate, or a gift received from a foreign corporation or partnership, which begins at 5% of the value of the gift and can reach as high as 25% of the value.

• Penalties for failure to report transfers of property to a foreign corporation (Form 926), which begin at 10% of the value of the property transferred to the corporation and which can reach a maximum of $100,000 per return.


Civil Title 26 Penalties

Continued… • Penalties for failure to file foreign corporation information returns

(Form 5471 and or Form 5472), which begin at $10,000 and can run as high as $50,000 per return.

• Penalties for failure to file Form 3520-A reflecting ownership of a foreign trust under the grantor trust rules, which consists of a penalty of 5% of trust assets.

• Penalties for failure to file foreign partnership information returns (Form 8865), which start at $10,000 and can reach a maximum of $50,000 per return, plus up to $100,000 of the value of property transferred to the foreign partnership.


NAVIGATING OFFSHORE VOLUNTARY DISCLOSURE PROGRAMS MARCH 2, 2016 PRESENTER: ASHER RUBINSTEIN, ESQ. RUBINSTEIN & RUBINSTEIN, LLP 845 THIRD AVE, 5th FLOOR NEW YORK, NEW YORK 10022 www.assetlawyer.com (212) 888-6600 [email protected]

http://www.assetlawyer.com/

mailto:[email protected]

Asher Rubinstein, Esq. Rubinstein & Rubinstein, LLP www.assetlawyer.com (212) 888-6600

2014 OVDP PROCEDURE: THE “THREE DOORS”

1. DOOR #1: PRE-CLEARANCE

REQUEST FOR PRE-CLEARANCE

IS THE TAXPAYER “CLEAR” TO DISCLOSE? I.E., DOES THE IRS ALREADY HAVE TAXPAYER’S NAME?

-FROM THE BANK? -FROM A TREATY REQUEST? -FROM A JOHN DOE SUMMONS? -FROM AN AUDIT OR INVESTIGATION? -FROM A WHISTLEBLOWER? -FROM SOMEONE ELSE’S VOLUNTARY DISCLOSURE? FAX TO IRS CRIMINAL INVESTIGATIONS (CI): (267) 941-1115 NEW TO 2014 OVDP: PRE-CLEARANCE FAX TO IRS DISCLOSES INCRIMINATING INFORMATION, E.G., NAME OF BANK. APPROX. 30-60 DAYS FOR PRE-CLEARANCE RESPONSE FROM IRS



2014 OVDP PROCEDURE THE “THREE DOORS”

2. DOOR #2: CRIMINAL INVESTIGATIONS (CI) VOLUNTARY DISCLOSURE LETTER AND ATTACHMENT(S) - NEW FORMS: IRS FORM 14457, OFFSHORE VOLUNTARY DISCLOSURE LETTER, AND IRS FORM 14454, ATTACHMENT TO OFFSHORE VOLUNTARY DISCLOSURE LETTER. - TO CRIMINAL INVESTIGATIONS (CI) - SIGNED BY THE TAXPAYER UNDER PENALTY OF PERJURY - IN-DEPTH QUESTIONNAIRE: SOURCE OF FUNDS, INTERACTION WITH ACCOUNT, WHO ASSISTED

(FACILITATORS), TRANSFERS, ESTIMATE OF ACCOUNT VALUES, TAXABLE INCOME

- EACH ACCOUNT SEPARATE ATTACHMENT

- DUE 45 DAYS AFTER PRE-CLEARANCE

- 2-3 MONTH RESPONSE TIME FROM CI.

- “PRELIMINARY ACCEPTANCE”

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2014 OVDP PROCEDURE THE “THREE DOORS” 3. DOOR #3: THE CIVIL PROCESS - OVDP PACKAGE: - ORIGINAL FILED TAX RETURNS (LAST EIGHT YEARS) - AMENDED RETURNS NOW REPORTING PREVIOUSLY UNREPORTED FOREIGN INCOME - INTEREST - DIVIDENDS - CAPITAL GAINS - RENT - ROYALTIES - ETC. - PAYMENT - TAX - INTEREST - 20% “ACCURACY” PENALTY - FAILURE TO PAY (FTP), FAILURE TO FILE (FTF), IF APPLICABLE. - OVDP PENALTY - 27.5% (OR 50% FOR ACCOUNTS AT CERTAIN BANKS)

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3. DOOR #3: THE CIVIL PROCESS (CONTINUED) OVDP PACKAGE (CONTINUED): - FBARS (LAST SIX YEARS) - ACCOUNT QUESTIONNAIRES - STATUTE OF LIMITATIONS WAIVERS (FBARS AND FORM 872) - PENALTY CALCULATION WORKSHEET - STATEMENT RE: ENTITIES (CORPORATIONS, TRUSTS, FOUNDATIONS, ETC.), SEE FAQ 25(2)(i) - STATEMENT RE: PFICS


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3. DOOR #3: THE CIVIL PROCESS (CONTINUED)

- IRS WILL CASH CHECKS IMMEDIATELY

- THE SOONER YOU PAY TAX, INTEREST STOPS RUNNING

- 6-12 MONTHS TO ASSIGN TO IRS REVENUE AGENT

- AGENT MAY ISSUE IDR [INFORMATION DOCUMENT REQUEST(S)]

- UPON COMPLETION, TAXPAYER AND IRS SIGN FORM 906 (CLOSING AGREEMENT) - 3 LEVELS OF REVIEW BEFORE IRS SIGNS 906 - TOTAL TIME FOR OVDP COULD BE TWO YEARS

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2014 OVDP DOCUMENTARY SUBMISSION

- Penalty check (27.5% OR 50%)

- Separate checks for each year: tax, interest, 20% “accuracy” penalty (+ FTF, FTP, if applicable)

- Amended tax returns (1040X) showing foreign income

- Copies of originally filed tax returns

- Copy of Voluntary Disclosure letter and Attachments to Criminal Investigations (CI)

- Foreign Account or Asset Statement for each account/asset (Form 14452)

- Foreign bank statements, documents re: other foreign assets

- FBARs (FinCEN Form 114)

- Waivers of Statute of Limitations, for FBARs and IRS Form 872

- Statement re: foreign entities (corporations, trusts, etc.)

- If disclosing foreign entities, the applicable IRS forms (e.g. IRS Form 3520/A for trusts, 5471 for corporations, etc.)

- PFICS?

- RRSPs? [FAQ 54]

- Documents may be submitted on CD/USB [FAQ 25.2]

Documentary submissions are in 2014 OVDP FAQ 25.



2014 OVDP WHAT’S DIFFERENT? 1. TAXPAYER TO DISCLOSE NAME AND CONTACT INFO OF BANK WHERE

ACCOUNT IS/WAS HELD, IN THE REQUEST FOR PRE-CLEARANCE. YOU PROVIDE SELF-INCRIMINATING INFORMATION INITIALLY, EVEN BEFORE PRE-CLEARANCE.

2. TAXPAYER TO DISCLOSE IDENTIFYING INFORMATION FOR ALL DOMESTIC AND FOREIGN

ENTITIES (CORPORATIONS, PARTNERSHIPS, TRUSTS, FOUNDATIONS) THROUGH WHICH UNDISCLOSED FOREIGN ASSETS ARE HELD. YOU PROVIDE SELF-INCRIMINATING INFORMATION INITIALLY, EVEN BEFORE PRE-CLEARANCE. CAN/WILL BE USED BY IRS/DOJ IF PRE-CLEARANCE DENIED?



2014 OVDP WHAT’S DIFFERENT? 3. INCREASED PENALTIES: 50% (NOT 27.5%) IF ACCOUNT IS AT A FOREIGN FINANCIAL INSTITUTION (FFI) WHERE AN EVENT OCCURS WHICH IS A “PUBLIC DISCLOSURE” (FAQ 7.2). AS OF FEBRUARY, 2016 (LAST UPDATE), THERE ARE 95 BANKS ON THE “NAUGHTY LIST”. 1. UBS AG 2. CREDIT SUISSE AG, CREDIT SUISSE FIDES, AND CLARIDEN LEU LTD. 3. WEGELIN & CO. 4. LIECHTENSTEINISCHE LANDESBANK AG 5. ZURCHER KANTONALBANK 6. SWISSPARTNERS INVESTMENT NETWORK AG, SWISSPARTNERS WEALTH MANAGEMENT AG, SWISSPARTNERS INSURANCE COMPANY SPC LTD., AND SWISSPARTNERS VERSICHERUNG AG 7. CIBC FIRST CARIBBEAN INTERNATIONAL BANK LIMITED, ITS PREDECESSORS, SUBSIDIARIES, AND AFFILIATES 8. STANFORD INTERNATIONAL BANK, LTD., STANFORD GROUP COMPANY, AND STANFORD TRUST COMPANY, LTD. 9. THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED IN INDIA (HSBC INDIA) 10. THE BANK OF N.T. BUTTERFIELD & SON LIMITED (ALSO KNOWN AS BUTTERFIELD BANK AND BANK OF BUTTERFIELD), ITS PREDECESSORS, SUBSIDIARIES, AND AFFILIATES 11. SOVEREIGN MANAGEMENT & LEGAL, LTD., ITS PREDECESSORS, SUBSIDIARIES, AND AFFILIATES (EFFECTIVE 12/19/14) 12. BANK LEUMI LE-ISRAEL B.M., THE BANK LEUMI LE-ISRAEL TRUST COMPANY LTD, BANK LEUMI (LUXEMBOURG) S.A., LEUMI PRIVATE BANK S.A., AND BANK LEUMI USA (EFFECTIVE 12/22/14)

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Asher Rubinstein, Esq. Rubinstein & Rubinstein, LLP www.assetlawyer.com

(212) 888-6600 2014 OVDP WHAT’S DIFFERENT? 13. BSI SA (EFFECTIVE 3/30/15) 14. VADIAN BANK AG (EFFECTIVE 5/8/15) 15. FINTER BANK ZURICH AG (EFFECTIVE 5/15/15) 16. SOCIETE GENERALE PRIVATE BANKING (LUGANO-SVIZZERA) SA (EFFECTIVE 5/28/15) 17. MEDIBANK AG (EFFECTIVE 5/28/15) 18. LBBW (SCHWEIZ) AG (EFFECTIVE 5/28/15) 19. SCOBAG PRIVATBANK AG (EFFECTIVE 5/28/15) 20 . ROTHSCHILD BANK AG (EFFECTIVE 6/3/15) 21. BANCA CREDINVEST SA (EFFECTIVE 6/3/15) 22. SOCIETE GENERALE PRIVATE BANKING (SUISSE) SA (EFFECTIVE 6/9/15) 23. BERNER KANTONALBANK AG (EFFECTIVE 6/9/15) 24. BANK LINTH LLB AG (EFFECTIVE 6/19/15) 25. BANK SPARHAFEN ZURICH AG (EFFECTIVE 6/19/15) 26. ERSPARNISKASSE SCHAFFHAUSEN AG (EFFECTIVE 6/26/15) 27. PRIVATBANK VON GRAFFENRIED AG (EFFECTIVE 7/2/15) 28. BANQUE PASCHE SA (EFFECTIVE 7/9/15)

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(212) 888-6600 2014 OVDP WHAT’S DIFFERENT? 29. ARVEST PRIVATBANK AG (EFFECTIVE 7/9/15) 30. MERCANTIL BANK (SCHWEIZ) AG (EFFECTIVE 7/16/15) 31. BANQUE CANTONALE NEUCHATELOISE (EFFECTIVE 7/16/15) 32. NIDWALDNER KANTONALBANK (EFFECTIVE 7/16/15) 33. SB SAANEN BANK AG (EFFECTIVE 7/23/15) 34. PRIVATBANK BELLERIVE AG (EFFECTIVE 7/23/15) 35. PKB PRIVATBANK AG (EFFECTIVE 7/30/15) 36. FALCON PRIVATE BANK AG (EFFECTIVE 7/30/15) 37. CREDITO PRIVATO COMMERCIALE IN LIQUIDAZIONE SA (EFFECTIVE 7/30/15) 38. BANK EKI GENOSSENSCHAFT (EFFECTIVE 8/3/15) 39. PRIVATBANK REICHMUTH & CO. (EFFECTIVE 8/6/15) 40. BANQUE CANTONALE DU JURA SA (EFFECTIVE 8/6/15) 41. BANCA INTERMOBILIARE DI INVESTIMENTI E GESTIONI (SUISSE) SA (EFFECTIVE 8/6/15) 42. BANK ZWEIPLUS AG (EFFECTIVE 8/20/15) 43. BANCA DELLO STATO DEL CANTONE TICINO (EFFECTIVE 8/20/15) 44. HYPOTHEKARBANK LENZBURG AG (EFFECTIVE 8/27/15) 45. SCHRODER & CO. BANK AG (EFFECTIVE 9/3/15)

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(212) 888-6600 2014 OVDP WHAT’S DIFFERENT? 46. VALIANT BANK AG (EFFECTIVE 9/10/15) 47. BANK LA ROCHE & CO AG (EFFECTIVE 9/15/15) 48. BELIZE BANK INTERNATIONAL LIMITED, BELIZE BANK LIMITED, BELIZE CORPORATE SERVICES LIMITED, THEIR PREDECESSORS, SUBSIDIARIES, AND AFFILIATES (EFFECTIVE 9/16/15) 49. ST. GALLER KANTONALBANK AG (EFFECTIVE 9/17/15) 50. E. GUTZWILLER & CIE, BANQUIERS (EFFECTIVE 9/17/15) 51.MIGROS BANK AG (EFFECTIVE 9/25/15) 52. GRAUBUNDNER KATONALBANK (EFFECTIVE 9/25/15) 53. BHF-BANK (SCHWEIZ) AG (EFFECTIVE 10/1/15) 54. FINACOR SA (EFFECTIVE 10/6/15) 55. SCHAFFHAUSER KANTONALBANK (EFFECTIVE 10/8/15) 56. BBVA SUIZA S.A. (EFFECTIVE 10/16/15) 57. PIGUET GALLAND & CIE SA (EFFECTIVE 10/23/15) 58. LUZERNER KANTONALBANK AG (EFFECTIVE 10/29/15) 59. HABIB BANK AG ZURICH (EFFECTIVE 10/29/15) 60. BANQUE HERITAGE SA (EFFECTIVE 10/29/15)

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(212) 888-6600 2014 OVDP WHAT’S DIFFERENT? 61. HYPOSWISS PRIVATE BANK GENÈVE S.A. (EFFECTIVE 10/29/15) 62. BANQUE BONHÔTE & CIE SA (EFFECTIVE 11/3/15) 63. BANQUE INTERNATIONALE A LUXEMBOURG (SUISSE) SA (EFFECTIVE 11/12/15) 64. ZUGER KANTONALBANK (EFFECTIVE 11/12/15) 65. STANDARD CHARTERED BANK (SWITZERLAND) SA, EN LIQUIDATION (EFFECTIVE 11/13/15) 67. BNP PARIBAS (SUISSE) SA (EFFECTIVE 11/19/15) 68. KBL (SWITZERLAND) LTD. (EFFECTIVE 11/19/15) 69. BANK CIC (SWITZERLAND) LTD. (EFFECTIVE 11/19/15) 70. PRIVATBANK IHAG ZÜRICH AG (EFFECTIVE 11/24/15) 71. DEUTSCHE BANK (SUISSE) SA (EFFECTIVE 11/24/15) 72. EFG BANK AG (EFFECTIVE 12/3/15) 73. EFG BANK EUROPEAN FINANCIAL GROUP SA, GENEVA (EFFECTIVE 12/3/15) 74. AARGAUISCHE KANTONALBANK (EFFECTIVE 12/8/15) 75. CORNÈR BANCA SA (EFFECTIVE 12/10/15) 76. BANK COOP AG (EFFECTIVE 12/10/15)

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(212) 888-6600 2014 OVDP WHAT’S DIFFERENT? 77. CRÉDIT AGRICOLE (SUISSE) SA (EFFECTIVE 12/15/15) 78. DREYFUS SONS & CO LTD, BANQUIERS (EFFECTIVE 12/15/15) 79. BAUMANN & CIE, BANQUIERS (EFFECTIVE 12/15/15) 80. BORDIER & CIE SWITZERLAND (EFFECTIVE 12/17/15) 81. PBZ VERWALTUNGS AG (EFFECTIVE 12/17/15) 82. POSTFINANCE AG (EFFECTIVE 12/17/15) 83. EDMOND DE ROTHSCHILD (SUISSE) SA (EFFECTIVE 12/18/15) 84. EDMOND DE ROTHSCHILD (LUGANO) SA (EFFECTIVE 12/18/15) 85. BANK J. SAFRA SARASIN AG (EFFECTIVE 12/23/15) 86. COUTTS & CO LTD (EFFECTIVE 12/23/15) 87. GONET & CIE (EFFECTIVE 12/23/15) 88. BANQUE CANTONAL DU VALAIS (EFFECTIVE 12/23/15) 89. BANQUE CANTONALE VAUDOISE (EFFECTIVE 12/23/15) 90. BANK LOMBARD ODIER & CO LTD (EFFECTIVE 12/31/15) 91. DZ PRIVATBANK (SCHWEIZ) AG (EFFECTIVE 12/31/15) 92. UNION BANCAIRE PRIVÉE , USP SA (EFFECTIVE 1/6/16) 93. PHZ PRIVAT - UND HANDELSBANK ZÜRICH AG REORGANIZED AS LEODAN PRIVATBANK AG (EFFECTIVE 1/25/16) 94. HYPOSWISS PRIVATBANK AG REORGANIZED AS HSZH VERWALTUNGS AG (EFFECTIVE 1/27/16) 95. BANK JULIUS BAER & CO., LTD (EFFECTIVE 2/4/16)

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WHAT CONSTITUTES “PUBLIC DISCLOSURE”? - ANNOUNCEMENT BY BANK? - ARTICLE IN PUBLIC MEDIA (NEWSPAPER, RADIO, ETC.)? - BLOG? PENALTY (50%) APPLIES TO ALL FOREIGN ASSETS DISCLOSED, NOT ONLY TO ACCOUNTS SUBJECT TO FAQ 7.2. IF ONE ACCOUNT IS AT A 50% BANK LISTED ABOVE, AND SECOND ACCOUNT IS AT A BANK NOT ON THE LIST, BOTH ACCOUNTS SUBJECT TO 50% PENALTY.


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2014 OVDP WHAT’S DIFFERENT? 4. 12.5% AND 5% PENALTIES ARE ELIMINATED. -BUT NOTE STREAMLINED 5% 5. OFFSHORE PENALTY CHECK (27.5% OR 50%) IS NOW DUE WITH THE OVDP SUBMISSION. (IN PREVIOUS OVDP, IT WAS DUE UPON SIGNING THE FORM 906, CLOSING AGREEMENT.) 6. NEW VOLUNTARY DISCLOSURE LETTER AND ATTACHMENTS VOLUNTARY DISCLOSURE LETTER, FORM 14457 VOLUNTARY DISCLOSURE ATTACHMENT, FORM 14454 7. NEW PENALTY CALCULATION WORKSHEET NEW FORM 14453 8. NEW FORM 14452- FOREIGN ACCOUNT AND ASSET STATEMENT

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ALTERNATIVES TO A VOLUNTARY DISCLOSURE

1. DO NOTHING

A. SWISS-U.S. SETTLEMENT AGREEMENT (DOJ PROGRAM FOR NON-PROSECUTION AGREEMENTS OR NON-TARGET LETTERS FOR SWISS BANKS) (AUGUST 29, 2013) - BANKS FREEZING ACCOUNTS. - BANKS PLACING LIENS = PENALTIES ON ACCOUNTS. B. FATCA - BANKS DEMANDING W-9s, FBARs, PROOF OF COMPLIANCE. C. JOHN DOE SUMMONS D. TREATY REQUEST E. PENALTIES OUTSIDE PROGRAM > PENALTIES INSIDE OVDP - U.S.A. v. ZWERNER (2014) 2. FILE FBARS A. FORMER FAQ 17, STILL VIABLE IF NO UNREPORTED FOREIGN INCOME (SEE 2014 FAQ 1.1 AND “DELINQUENT FBAR SUBMISSION PROCEDURES”)



ALTERNATIVES TO A VOLUNTARY DISCLOSURE (CONTINUED)

3. QUIET DISCLOSURE FBARS + AMENDED RETURNS = HUGE RISK 4. STREAMLINED DOMESTIC/OFFSHORE - LACK OF CLARITY/GUIDANCE RE: “WILLFULNESS” - POSSIBLE TRAP - SWORN STATEMENT/PERJURY 5. OVDP, THEN OPT-OUT – NEED TO EXAMINE (A) FACTS AND (B) MATH: COMPARE 27.5% PENALTY TO PENALTY ON OPT-OUT

6. WHAT IF I CLOSE THE ACCOUNT? MOVE THE MONEY TO A NEW BANK? BUY GOLD? BUY REAL ESTATE? A. PAPER TRAIL B. SOURCE OF FUNDS/ “KNOW YOUR CLIENT” C. FATCA

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2014 OVDP COMMON QUESTIONS

- HOW LONG WILL THE PROCESS TAKE? PRE-CLEARANCE 30-60 DAYS FOR IRS RESPONSE VOLUNTARY DISCLOSURE LETTER AND ATTACHMENTS DUE 45 DAYS FROM PRE-CLEARANCE 2-3 MONTHS FOR IRS RESPONSE (PRELIMINARY ACCEPTANCE) CIVIL PROCESS OVDP PACKAGE DUE WITHIN 90 DAYS OF PRELIMINARY ACCEPTANCE 6-12 MONTHS TO ASSIGN TO IRS REVENUE AGENT TOTAL: 1-2 YEARS

- WHAT WILL IT COST? - TAX - INTEREST - 20% “ACCURACY” PENALTY - OVDP “MISCELLANEOUS” PENALTY (27.5%/ 50%) - FAILURE TO FILE (FTF) AND FAILURE TO PAY (FTP) PENALTIES, IF APPLICABLE + LEGAL FEES + CPA FEES TRANSLATIONS? BANK PHOTOCOPY / ARCHIVE FEES?



2014 OVDP COMMON QUESTIONS - CAN PENALTIES OR TAXES BE NEGOTIATED? - WHEN WILL I HAVE TO PAY? - WHAT IF I CAN’T PAY IT ALL AT ONCE? - SHOULD I HIRE A LAWYER? - WILL THE OVDP LEAD TO AN AUDIT? - WILL MY EMPLOYER FIND OUT? - CAN I LEAVE THE COUNTRY? MUST I SURRENDER MY PASSPORT? - WHAT IF THE FOREIGN FUNDS WERE ILLEGALLY OBTAINED? - CAN I DISCLOSE ONE ACCOUNT, BUT NOT DISCLOSE A DIFFERENT ACCOUNT OR ASSET? - WHAT IF FAMILY MEMBERS WERE ON AN ACCOUNT? WILL THEY GET INTO TROUBLE? - WHEN WILL THE OVDP END? WHEN SHOULD I DO THIS? - WHAT IF I JUST CLOSE THE ACCOUNT? - WHEN CAN I BRING THE MONEY BACK?

33



ASHER RUBINSTEIN BIO

Asher Rubinstein, Esq. concentrates his law practice on asset protection, wealth preservation, tax planning, tax compliance and tax controversy.

Asher has advised hundreds of clients around the world on IRS compliance issues, including international banking and cross-border taxation. He has represented clients before the IRS including in connection with offshore voluntary disclosures.

Asher is a frequent commentator on tax, banking and offshore issues in major media, including the New York Times, Bloomberg, CNBC, Forbes, NPR, Tax Notes International, CNNMoney.com and Reuters, as well as media in Switzerland, Austria, the United Kingdom and India.

Asher may be reached at (212)888-6600 and [email protected]

34



DISCLAIMER

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⁻ The reader understands that an attorney-client relationship can only be created when Rubinstein & Rubinstein, LLP and the reader execute a Retainer Agreement signifying that the reader retains Rubinstein & Rubinstein, LLP as his or her attorney.

⁻ This Webinar and this presentation and the dissemination or publication of information herein do not constitute a solicitation or offer of legal or other services in any jurisdiction.

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⁻ Reasonable efforts are taken to ensure the accuracy and integrity of information and related materials provided by Rubinstein & Rubinstein, LLP in this Webinar and in this presentation, but Rubinstein & Rubinstein, LLP is not responsible for misprints, out-of-date information, omissions, technical inaccuracies, typographical or other errors, or wherever there may be any Rubinstein & Rubinstein, LLP information or materials on any other website.

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35


36

WEBINAR ON

“FBAR AND U.S. TAX REPORTING AND COMPLIANCE REQUIREMENT FOR

FOREIGN ASSETS” March 2, 2016

1:00-2:30 PM EDT

Presenter: Deborah J. Jacobs The Law Office of Deborah J. Jacobs

45 Rockefeller Plaza, Suite 2000 New York, NY 10111

(212) 332-3248 www.jacobstaxlaw.com

http://www.jacobstaxlaw.com/

37

Deborah J. Jacobs, Owner The Law Office of Deborah J. Jacobs

Since 2009, Ms. Jacobs has devoted a significant portion of her practice to international tax compliance matters--primarily in the areas of Offshore Voluntary Disclosure, Dual Citizenships, FBAR Compliance, and FATCA Compliance. She has had frequent speaking engagements on the Offshore Voluntary Disclosure Programs, most recently speaking at an American Bar Association Tax Section Meeting and as a panelist for Strafford and Bloomberg BNA Webinars. She also has been quoted in Tax Notes Today and Politico’s Morning Tax on related issues.

In addition, Ms. Jacobs has more than 25 years of experience in all aspects of international tax practice, including issues related to Subpart F, PFIC, repatriation, foreign tax credit, and tax treaty planning. Her cross-border transactional experience includes mergers and acquisitions, post-merger/acquisition integrations, cross-border financings, private equity transactions, and structured finance.

A more detailed profile of Ms. Jacobs can be found on her law firm’s website at http://jacobstaxlaw.com/lawyer/aboutus/Attorney-Profile_pa10075.htm

Ms. Jacobs can be reached at 212-332-3248 or at [email protected]

http://jacobstaxlaw.com/lawyer/aboutus/Attorney-Profile_pa10075.htm



mailto:[email protected]

38

IRS Update of the Offshore Compliance Programs

• At the Annual Florida International Tax Conference in Miami on January, David Horton, Acting Deputy Commissioner International for IRS Large Business and International Division, noted that both the OVDP and the Streamlined Programs would end eventually: “They are not permanent programs. These are opportunities.”

• Mark Daly, senior litigation counsel in the Justice Department’s Tax Division, also noted that Justice is getting a lot of good information from the OVDP that will lead Justice to more recalcitrant Taxpayers.

• Eric Hylton, director of international operations for IRS CI noted that CI has 16 attaches in 10 locations working to develop cases and informants.

• Moreover, the IRS has already begun sharing information with other countries under FATCA Intergovernmental Agreements.

• BOTTOM LINE: Encourage your clients to act while they can!

39

IRS Update of the Offshore Compliance Programs, con’t

• On Friday, October 16, 2015, the IRS released IR-2015-116 in which it stated the following:

• More than 54,000 Taxpayers have used the Offshore Voluntary Disclosure Programs since 2009 to come into full compliance with their tax and reporting obligations and the IRS has collected more than $8 billion;

• More than 30,000 Taxpayers have used the Streamlined Procedures to come back into full compliance, with 20,000 alone having used the 2014 Streamlined Procedures;

• FATCA and the network of intergovernmental agreements (IGAs) make it less likely that offshore financial accounts will go unnoticed by the IRS;

40

IRS Update of the Offshore Compliance Programs, con’t

• On January 7, the IRS updated its list of FAQs for Streamlined filing for both

the U.S. resident and foreign resident U.S. taxpayers; • In both cases, the new FAQs (FAQ 13 for domestic filers and FAQ 6 for

international filers) provide clarity on the narrative statement of facts that must accompany a submission and on the need to have both spousal signatures on the certification when there is a joint return at issue; • These changes address the problem the IRS has seen with patently

insufficient or completely missing statements of facts on Streamlined Certifications and the presence of only one signature on the certification of married taxpayers who file joint returns as two of the most common problems with Streamlined submissions.

41

Streamlined Filing Compliance Procedures

• On June 18, 2014, the IRS announced changes to the existing Streamlined Filing Compliance Procedure, which had been in effect since September 1, 2012 (the “Former 2012 Streamlined Program”).

• The Former 2012 Streamlined Program was difficult to qualify for because it applied only to non-resident, non-filing U.S. taxpayers (including dual residents) with a low compliance risk and less than $1500 of tax due.

• U.S. resident taxpayers and U.S. non-resident taxpayers who filed U.S. tax returns, but who (1) failed to include offshore income on their U.S. tax returns, and/or (2) failed to properly file FBARs, were not allowed to participate in the Former 2012 Streamlined Procedure.

42

What is the Purpose of the New Streamlined Filing Compliance Procedures?

• The new Streamlined Filing Compliance Procedures are designed to provide new options to help both U.S. taxpayers residing overseas, AND in the U.S., comply with their U.S. tax obligations.

• Effective July 1, 2014, there are 2 NEW Streamlined Filing Compliance Procedures:

(1) the Streamlined Domestic Offshore Procedures (SDOP) and (2) the Streamlined Foreign Offshore Procedures (SFOP)

• Compared to the Former 2012 Streamlined Program, the SDOP and the SFOP

include a broader section of non-compliant, but non-willful, U.S. taxpayers.

• For the first time, U.S. resident taxpayers who are out of compliance with reporting their foreign source income or, who have failed to file international information returns such as the FBAR, can now participate.

43

General Eligibility for the New Streamlined Filing Compliance Procedures

• The new Streamlined Filing Compliance Procedures are designed only for individual

taxpayers, including estates of individual taxpayers.

• To be eligible for the SFOP: the taxpayer must meet the definition of a “non-resident taxpayer” and filed delinquent or amended income tax returns. All penalties are waived.

• To be eligible for the SDOP: the taxpayer must fail to satisfy the “non-residency” criteria and file amended income tax returns. There is a 5% miscellaneous penalty on assets reportable on an FBAR or Form 8938.

• Taxpayers must certify under penalties of perjury: that their conduct for the failure to report all income, pay all tax and file all information returns, including FBARs, was due to non-willful conduct.

44

Inherent Risks in the New Streamlined Filing Compliance Procedures

• Once a taxpayer makes a submission under either of the new Streamlined Procedures (i.e., the SFOP or the SDOP), she/he may not participate in the 2014 Offshore Voluntary Disclosure Program (OVDP).

• If the IRS receives or discovers evidence of willfulness, fraud, or criminal conduct on the part of the taxpayer, the IRS could open an examination or investigation that could lead to civil fraud penalties, FBAR penalties, information return penalties, or even a referral to Criminal Investigation. But, a taxpayer can reduce the risk of a false certification by fully disclosing all facts.

• In addition, the IRS has said that there will be no pre-clearance protection under the new Streamlined Procedures.

• Accordingly, taxpayers who are concerned that their failure to report income, pay tax, and/or to file required information returns was due to willful conduct should seriously consider participating in the OVDP.

45

The Certification Statement for the SDOP (Form 14654) and SFOP (Form 14653)

• Under the new FAQs (13 for the SDOP/6 for the SFOP), Taxpayers must include a narrative statement of facts setting for the specific reasons for a failure to report all income, pay all tax, and submit all required information returns, including FBARs;

• Taxpayers must include the whole story including both favorable and unfavorable facts.

• Specific reasons, whether favorable or unfavorable, should include the Taxpayer’s personal background, financial background, and anything else the Taxpayer believes is relevant to his/her failure to report all income, pay all tax, and submit all required information returns, including FBARs.

46

The Certification Statement for the SDOP (Form 14654) and SFOP (Form 14653), con’t

• The Taxpayer should explain the source of in his/her foreign financial accounts/assets:

1. Was the account/asset inherited?

2. Did the Taxpayer open the account while residing in a foreign country?

3. Did the Taxpayer have a business reason to open or use the account?

4. What contacts did the Taxpayer have with the account/asset including withdrawals, deposits, and investment/management decisions.

• If the Taxpayer inadvertently checked “no” on Schedule B, he/she should provide an explanation.

47

The Certification Statement for the SDOP (Form 14654) and SFOP (Form 14653), con’t

• If the Taxpayer owned or controlled a foreign entity (eg. corporation, trust, partnership) and failed to properly report ownership of the entity or control of the entity, the Taxpayer should explain why he/she failed to do so, including whether the Taxpayer had any knowledge of his/her reporting obligations.

• If the Taxpayer relied on a professional advisor, then he/she should provide the name, address, and telephone number of the advisor and a summary of the advice. Also provide background on how the Taxpayer came into contact with the advisor and frequency of communication with the advisor.

• If married taxpayers submit a joint certification and have different reasons for their non-compliance, then each should provide the individual reasons separately in the statement of facts.

48

What is Non-Willful Conduct?

• In order to participate in the SFOP or the SDOP, a Taxpayer must certify under penalty of perjury that his/her conduct was non-willful.

• The IRS has said that “non-willful conduct” for the new Streamlined Programs is “conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”

• The IRS also has said that it will give no further definition of non-willful conduct for purposes of the SFOP or the SDOP (other than that stated above). It has said that the concept of willfulness is well documented in case law and expects practitioners to apply those definitions, as well as relevant portions of the IRS Manual in advising clients on whether their conduct fits within the definition of non-willfulness.

49

What is Non-Willful Conduct?, con’t

• What kind of evidence is relevant to demonstrate “non-willfulness” for purposes of the SDOP and the SFOP when the definition of non-willful conduct ranges from negligent conduct to conduct resulting from a good faith misunderstanding of the law?

• How does a taxpayer actually prove that he/she did not know about including offshore income on his/her U.S. tax return or that he/she never knew about the FBAR filing requirement? What kind of supporting evidence does the taxpayer need to show?

• In determining whether the taxpayer can legitimately certify that he or she is non-willful, ALL relevant facts and circumstances should be analyzed to determine whether the taxpayer’s conduct is really non-willful.

50

What is Non-Willful Conduct? con’t

• The IRS requires that every U.S. taxpayer applying for one of the new Streamlined Procedures write a personal statement on the Certification Form (Form 14654 for the SDOP and Form 14653 for SFOP) setting forth the specific reasons for his or her failure to report all income, pay all tax, and submit all required information returns, including FBARs.

• If the taxpayer relied on a professional advisor, the IRS wants the taxpayer to provide the name, address, and telephone number of the advisor, and a summary of the advice relied upon.

• Moreover, if married taxpayers submitting a joint certification have different reasons for non-compliance, then the IRS requires that each taxpayer provide his or her own personal statement on the Certification Form.

51

What is Non-Willful Conduct? Use of an Accountant/Tax Preparer

Questions relevant to a finding of non-willfulness:

• Did the taxpayer use an accountant or paid return preparer to prepare the tax returns?

• If so, was the taxpayer given a tax organizer? If yes, did the taxpayer fill it out truthfully? Does the taxpayer have a copy of the organizer?

• If the taxpayer did not receive an organizer from the tax advisor, was he/she asked about the existence of any offshore accounts or assets, or about any foreign source income?

• If the advisor did not ask the taxpayer the above questions, did the taxpayer affirmatively tell the accountant or tax return preparer about the existence of any offshore accounts, offshore assets, or foreign source income?

52

What is Non-Willful Conduct? Taxpayer’s Knowledge and Level of Sophistication

• Did the taxpayer have any knowledge of the foreign source income, foreign accounts or foreign assets? Why was there income?

• What is taxpayer’s level and type of education?

• Does the taxpayer have any specialized knowledge of tax rules or finance or the fact that the U.S. requires U.S. persons to report income on a worldwide basis on their tax returns?

• Does the taxpayer know anything about an FBAR or international information returns, such as a Form 5471?

53

What is Non-Willful Conduct? Taxpayer’s Connection to the Country, etc.

• Was the taxpayer a citizen or resident of the country where the accounts/assets were/are located? If not, why were the accounts opened in that country?

• If the taxpayer opened the account, did he/she do so with a U.S. passport, if applicable? Was the account opened in a jurisdiction with no bank secrecy laws?

• What were/are the sources of the funds in the accounts?

• Is the source of funds traceable to previously taxed income? Were the funds an inheritance? Were the funds from taxpayer’s work in the country where the accounts are located?

54

What is Non-Willful Conduct? Activities in the Offshore Account

• What type of activities took place with respect to the accounts? Deposits, withdrawals, wire transfers? If so, how frequent were these activities?

• Were there any trades in the accounts? If so, who managed the accounts?

• Was there a credit card associated with the account? If so, did the taxpayer ever use it? If so, how frequently?

• Did the taxpayer receive regular statements from the bank? If not, did a relative or friend receive statements or did the bank have instructions not to send any statements to the taxpayer?

55

What is Non-Willful Conduct? Activities in the Offshore Account, con’t.

• Has the account ever been moved? If so, why? Was it moved to a tax transparent country or to a jurisdiction with a tradition of bank secrecy?

• Was an entity used when the account was opened? If so, did the bank require the use of an entity? Was it used to disguise the true identity of the account owner?

56

The Concept of Willful Blindness

• The IRM defines willfulness in the FBAR context as “a voluntary, intentional violation of a known legal duty.” (IRM 4.26.16.4.5.3).

• Under the concept of “willful blindness,” willfulness may be attributed to a person who has made a conscious effort to avoid learning about the FBAR reporting requirements.

• Key Question: Under all the facts and circumstances, should the taxpayer have inquired about the reporting of a foreign financial account and/or its income? Or should the accountant or tax preparer have made an effort to explain what kinds of foreign accounts and assets are reportable?

• What if the wrong box is checked on Schedule B? Implications? The mere fact that a person checked the wrong box, or no box, on a Schedule B is not sufficient, by itself, to establish that an FBAR violation was due to willful blindness.

57

Differences Between the SDOP and the SFOP

The primary differences between the SFOP and the SDOP are:

1. Residency vs. non-residency: in the SFOP, the taxpayer qualifies as a non-resident U.S. taxpayer, whereas in the SDOP, the taxpayer qualifies as a resident U.S. taxpayer;

2. Penalties: in the SFOP, all penalties are waived--the taxpayer only needs to pay taxes and interest due over a three-year period. In the SDOP, the taxpayer must pay taxes and interest due over a three-year period AND a 5% miscellaneous penalty on the highest account balances of the taxpayer’s offshore assets (using a six-year look back period and the year-end balances); and

58

Differences Between the SDOP and the SFOP, con’t.

3. Information returns: Paragraph 21.8.1.27.2.1 (9)(6) of the Internal Revenue Manual instructs account managers to refer any SDOP case with five or more foreign information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, or 8621) to LB&I OVDP Compliance. The five information return threshold is a combination of all years filed. (This referral threshold does not apply to the SFOP).

Example: Taxpayer’s submission contains three Forms 5471 for 2011 and three Forms 5471 for 2012. This submission would be referred to LB&I since the total number of information returns submitted is six.

59

Eligibility Requirements for the SFOP

In addition to the general eligibility requirements discussed before,

the Taxpayer must:

1. Meet the applicable non-residency requirement (for joint filers, both spouses must meet the applicable non-residency requirement);

2. Have failed to report the income from a foreign financial asset

and failed to pay tax on it;

3. May have failed to file an Information Return, such as an FBAR; and

4. Such failures resulted from non-willful conduct.

60

Non-Residency Requirement of the SFOP

Individual U.S. citizens or lawful permanent residents (e.g., Green Card

Holders) or their estates meet the applicable non-residency requirement if:

1. In any one or more of the most recent three years for which the U.S. tax return due date (or properly extended due date) has passed, the taxpayer did not have a U.S. “abode” and the taxpayer was physically outside the U.S. for at least 330 days.

2. Neither temporary presence of the taxpayer in the U.S. nor maintenance of a dwelling in the U.S. by an individual necessarily means that the taxpayer’s “abode” is in the U.S.

61

What is a U.S. Abode?

• The SFOP looks to the definition of Abode in IRC Section 911(d)(3) and Treas. Reg.§ 1.911-2(b).

• Abode has been defined as one’s home, habitation, residence, domicile, or place of dwelling.

• It does not mean your principal place of business.

• Abode has a domestic rather than a vocational meaning and does not mean the same thing as “tax home.”

• The location of your abode often will depend on where you maintain your economic, family, and personal ties.

• You are not considered to have a tax home in a foreign country for any period in which your abode is in the U.S.

62

What is a Non-Resident for Purposes of the SFOP?

• Example One: Taxpayer was born in the U.S. but moved to France with his parents

when he was six years old, has lived in France ever since, and does not have a U.S. abode. Taxpayer meets the non-residency requirement applicable to individuals who are U.S. citizens or green card holders.

• Example Two: Assume the same facts except that Taxpayer moved to the U.S. and acquired a U.S. abode in 2012. The most recent 3 years for which the Taxpayer’s U.S. tax return due date (or properly extended due date) has passed are 2013, 2012 and 2011. Taxpayer meets the non-residency requirement applicable to individuals who are U.S. citizens or green card holders because in one or more of the most recent three years for which the U.S. tax return due date has passed, the taxpayer did not have a U.S. abode.

63

Non-Residency Requirement For Taxpayers who are not U.S. Citizens or Green Cardholders

• The SFOP provides a different non-residency requirement for taxpayers who are not U.S. citizens or green card holders.

• Taxpayers in this category will meet the non-residency requirement if, in any one or more of the last three years for which the U.S. tax return due date (or properly extended due date) has passed, the

taxpayer did not meet the “substantial presence” test.

64

Non-Residency Requirement For Taxpayers Who are not U.S. Citizens or Green Card Holders, con’t.

• Example: Taxpayer is not a U.S. citizen or a green card holder. Taxpayer was born in Italy and resided in Italy until May 1, 2012, when her employer transferred her to the U.S. Taxpayer was physically present in the U.S. for more than 183 days in both 2012 and 2013. The most recent 3 years for which the taxpayer’s U.S. tax return due date (or properly extended due date) has passed are 2013, 2012 and 2011. While Taxpayer did meet the substantial presence test for 2012 and 2013, she did not meet it for 2011.

Result: Taxpayer meets the non-residency requirement for purposes of the SFOP.

65

The SFOP Procedure

Once it is determined that a Taxpayer is eligible to participate in the SFOP, the Taxpayer must: • File delinquent or amended tax returns, together with all required

information returns for each of the most recent three years and pay any tax and interest due;

• File delinquent or amended FBARs for each of the most recent six years;

and • File a Certification in which the Taxpayer certifies under penalty of perjury

that the failure to file tax returns, report all income, pay all tax, and submit all information returns, including FBARs was due to non-willful conduct.

There are special rules if the Taxpayer is seeking relief for failure to elect

deferral of income from retirement plans.

66

Eligibility Requirements for the SDOP

In addition to the general eligibility requirements discussed before, the Taxpayer must:

1. FAIL to meet the applicable non-residency requirement (for joint filers one or both spouses must FAIL to meet the applicable non-residency requirement);

2. Have previously filed a U.S. tax return for each of the most recent 3 years for which the U.S. tax return due date (or properly extended due date) has passed;

3. Have failed to report gross income for a foreign financial asset and pay tax on it and may have failed to an information return, such as an FBAR, with respect to such asset; and

4. Certify that such failures resulted from non-willful conduct.

67

The SDOP Procedure

Once it is determined that a Taxpayer is eligible to participate in the SDOP, the Taxpayer must:

• File amended tax returns, together with all required information returns for each of the most recent three years and pay any tax and interest due;

• File delinquent FBARs for each of the most recent six years; and

• File a Certification in which the Taxpayer certifies under penalty of perjury that the failure to file tax returns, report all income, pay all tax, and submit all information returns, including FBARs, was due to non-willful conduct.

There are special rules if the Taxpayer is seeking relief for failure to elect deferral of income from retirement plans.

68

The SDOP Miscellaneous Penalty

• In addition to paying any tax and interest due, a taxpayer participating in

the SDOP must pay a 5% miscellaneous penalty on the highest aggregate balance/value of the Taxpayer’s foreign financial assets that are subject to the miscellaneous offshore penalty during the years in the covered FBAR period.

• In this case, year-end account balances and year-end asset values are used in lieu of the highest balances over the course of the year—and the 5% penalty is assessed on the highest year.

69

Assets Included in the Miscellaneous Penalty

• For the six years covered in the FBAR period, all foreign financial accounts (as defined in the instructions for FinCEN Form 114) in which the taxpayer has a personal financial interest that should have been, but were not reported on an FBAR.

• For the three years covered in the tax return period, all foreign financial assets (as defined in the instructions for Form 8938) in which the taxpayer has a personal financial interest that should have been, but were not reported on Form 8938,

• For the three years covered in the tax return period, all foreign financial accounts/assets (as defined in the Instructions for FinCEN Form 114 or IRS Form 8938) for which gross income was not reported for that year.

Statute of Limitations as a

Strategy • You can’t decide about whether to extend the SOL unless you

know what the SOL is.

• You can’t decide on whether or not to enter OVDP or

Streamlined unless you know what the SOL is.

• An agreement to extend the SOL for income taxes is not valid

unless it is executed by the taxpayer, AND the IRS before the

SOL would have otherwise expired.

• A client can waive the SOL with respect to FBAR violations

before, or after the SOL has otherwise expired.


FBAR Statute of

Limitations

• Six Years from the date that the FBAR is due without

regard to whether it was filed late, or not at all.

• Due date is June 30th, and no extensions.

• Beginning with the 2016 tax year the FBAR is due April

15th, and extensions will be available.


Income Tax Statute of

Limitations Issues

• General Three year Rule

• Six Year Rule

• Unlimited Statute of Limitations


When Must An Assessment Be

Made-Income Taxes?

• I.R.C. § 6501(a): The general rule is that a tax may not be collected until it has been assessed, and must be assessed within three years of the filing of the return, regardless of whether the return is timely filed or filed late.

• If the return is filed late, the three years begin to run from the date the return is filed.

• Returns filed early: the deemed filing date will be the statutory due date, generally April 15th.

• Returns filed on extension: the filing date will be considered the date of delivery • of delivery

• Practice Pointer – Assessment becomes an important date for determining when the three year period begins for purposes of filing a claim for refund pursuant to IRC §§ 6402 and 6411.


Major Exceptions Related to

Income Taxes • False or fraudulent return IRC Section 6401(c)(1). Unlimited

• Willful attempt to evade tax. IRC Section 6401(c)(2). Unlimited

• No return (Substitute Returns don’t count). Unlimited. The SOL doesn’t

begin to run until the return is filed.

• Extension of the SOL by agreement. IRC Section 6501(c)(4)

• Substantial Omission of Income. IRC Section 6501(e). Six years.

• NOL Carrybacks or Capital Loss Carrybacks. IRC Section 6501(h). Tied

to loss year.

• Failure to notify Secretary of certain foreign transactions. IRC Section

6501(c)(8). Three years after the IRS is furnished the information.


Exception – False Returns or Intent

to Evade Tax or Fraudulent Return

Filed

• Where a false return is filed with the intent to evade tax, the

tax may be assessed or collection may occur at any time after

the return has been filed. IRC §6501(c)(1).

• IRS must prove by clear and convincing evidence that the

taxpayer’s return was false or fraudulent along with the

requisite intent to evade tax.

• Subsequent filing of a return will not start the 3 year

assessment statute under IRC §6501(a) unless it is filed prior

to the due date of the return.


Extended SOL Triggered by Failure to Timely

File Foreign Information Reporting Forms, or

Disclose Income from Specified Foreign

Financial Assets

• IRC Section 6501(c)(8) as amended by the HIRE Act, provides that if certain information related to foreign

transactions is not provided to the IRS then the SOL remains open “with respect to any tax return, event, or

period to which such information relates.” That is, the SOL is extended for the entire tax return.

• Prior to amendment, IRC Section 6501(c)(8) provided that the SOL only remained open “with respect to

any event or period to which such information relates,” but not the entire tax return.

• If, however, the taxpayer is able to show the failure to file the required foreign information reporting form

was due to reasonable cause and not willful neglect, the extended SOL only applies to the item or items that

should have been reported on the foreign information reporting form, and not the entire tax return.

• The HIRE Act also amended IRC Section 6501(c)(8) to provide that the failure to file IRS Form 8938 to

report foreign financial assets is an additional basis for extending the SOL for 3 years from the date such

information is reported to the IRS.

• Remember: Only individuals are currently required to file Form 8938

• The SOL extension is applicable not only in the case of the non-filing of the appropriate form, but if the

information listed on the form is incomplete. See Temp. Treas. Reg. Section 1.1298-1T (d).


77

International Reporting Forms That

Trigger The Extended Statute of Limitations

IRS Form Reporting Obligation IRC Section

Form 5471 U.S. persons who control foreign

corporation § 6038

Form 926 Nonrecognition transfers to foreign

corporations § 6038B

Form 5471 U.S. persons who become officers or

directors of a foreign corporation § 6046

Form 8865 U.S. persons who control foreign

partnerships § 6046A

Form 3520 Gratuitous transfers to foreign trusts

and U.S. owners of foreign trusts § 6048(a), (b)

Form 8858 Foreign Single Member Disregarded

Entities § 6038, 6038B

Form 8621 Shareholder of a PFIC § 1298 (f)*

Form 5472 U.S. corporations with a 25% foreign

shareholder § 6038A

Form 3520-A Distributions received by U.S.

persons from foreign trusts § 6048 (c)

Form 8621 All Shareholders of PFICs § 1298 (f)

Form 8938 Specified Persons required to Report

Specified Foreign Financial Assets

Section 6038D

§ 6038D

Copyright © 2016, Brager Tax Law Group

Extended SOL Triggered by Failure to Disclose

Income from Specified Foreign Financial Assets

Amendment to IRC Section 6501(e) regarding omission of income from foreign assets:

• IRC Section 6501(e)(1)(A)(ii) provides that if a taxpayer omits or fails to report

more than $5,000 of gross income attributable to a “specified foreign financial

asset” (as defined in IRC Section 6038D), a 6-Year SOL applies to the entire tax

return.

• For purposes of the SOL extension, the filing thresholds ($50,000 / $75,000 for

single; $100,000 / $150,000 for joint) for filing IRS Form 8938 are not taken into

consideration. Thus, a taxpayer may not be required to file Form 8938 but could

still be subject to an extended SOL under IRC Section 6501(e).


Specified Foreign Financial Assets Reportable

on Form 8938

• Foreign Financial Accounts. E.g. Bank accounts, securities accounts

• Stock or securities issued by someone that is not a U.S. person

• Any interest in a foreign entity

• Any financial instrument or contract that has an issuer or counterparty that is not a

U.S. person

• Examples of other specified foreign financial assets include the following, if they are

held for investment and not held in a financial account.

o Stock issued by a foreign corporation.

o A capital or profits interest in a foreign partnership.

o A note, bond, debenture, or other form of indebtedness issued by a foreign

person.

o An interest in a foreign trust or foreign estate.


Extension of SOL Based Upon John

Doe Summons

• IRC § 7609(e)(2) suspends limitations for assessment under IRC §

6501 for the John Doe class on the 6-month anniversary of service of

the summons until final resolution of response or a withdrawal of the

summons.

• John Doe Summons Outstanding for more than 6 Months include:

o UBS

o Stanford

o HSBC India


Delinquent FBAR Submission

Procedures

• If all taxable income was reported then the taxpayer

can file the delinquent FBAR with an explanation, and

no penalty will be imposed.

• Very similar to former OVDP FAQ 17


Delinquent International Information

Return

Submission Procedures

• A statement of reasonable cause with a statement of all facts establishing

reasonable cause for the failure to file must be submitted.

• Must include a certification that the entity for which the return is being

submitted did not engage in tax evasion.

• Old FAQ 18. A taxpayer who has failed to file tax information returns, such

as Form 5471 for controlled foreign corporations (CFCs) or Form 3520 for

foreign trusts but who has reported, and paid tax on, all their taxable

income with respect to all transactions related to the CFCs or foreign trusts,

could file delinquent information returns. No penalty.

• C.f. Former OVDP FAQ 32 and 35 excluding from penalties, accounts and

assets which generated no gross income.

82 Copyright © 2016, Brager Tax Law

Group

Brager Tax Law Group

Los Angeles

10880 Wilshire Boulevard, Suite 880

Los Angeles, California 90024

Phone: 310.208.6200

Toll Free: 800.380.TAX LITIGATOR

Fax: 310.478.8030

83

@TaxProblemEsq www.bragertaxlaw.com www.taxproblemattorneyblog.com

Tax Litigation & Tax Controversy Services We Provide

• Criminal Tax Defense • FBAR and Offshore Account Problems • Office of Professional Responsibility

(OPR) Defense • Tax Audits & Tax Appeals • Tax Fraud Defense • Tax Preparer Penalty Defenses • Innocent Spouse Defenses • California Sales Tax Problems • IRS and California Payroll Tax Problems • Offers in Compromise • Installment Payment Agreements

Copyright © 2016, Brager Tax Law Group

84

Hypothetical One

• Taxpayer is a citizen of Australia. She comes to the U.S. on a visa in 2001 as a post-graduate research fellow in biochemistry at the University of California in Berkeley. After her fellowship ends, she accepts a position as a middle school science teacher at a public school in Berkeley, where she earns less than $60,000 a year. She also gets a Green Card in 2006.

• Prior to leaving Australia, Taxpayer receives a small inheritance of $40,000 (USD) and she opens an account at the Bank of Australia. It is an interest bearing account in which she earns a small about of interest each year;

85

Hypothetical One, con’t

• Taxpayer is not very tech savvy and, given her limited means, she always prepares her own tax return on Form 1040EZ. Taxpayer is single and her tax return is handwritten. She does not include the interest income from her foreign account on her tax return—nor does she file an FBAR;

• In 2014, Taxpayer receives a substantial gift from her mother ($120,000 USD). Given the size of the gift, Taxpayer decides she should seek the advice of an accountant, who tells her about her tax and FBAR non-compliance. He also tells her about a Form 3520 and a Form 8938, which must be filed for the 2014 tax year. He suggests that she do a “Quiet Disclosure” for her prior non-compliant years.

• Is this good advice? Discuss.

86


• Taxpayer decides to get a second opinion from a tax attorney. Tax attorney advises that the IRS does not look favorably upon quiet disclosures and encourages Taxpayer to consider the new Streamlined Domestic Offshore Procedures, where she would file three years of returns and six years of FBARs and pay a 5% miscellaneous penalty on her highest account balance.

• Is this good advice? Discuss.

• Would your answer change if Taxpayer had used an accountant to prepare her tax returns and on the organizer that the accountant asked her to complete, she had checked the “no” box to the question asking her if she had any offshore accounts?

87


• What if Taxpayer were married and her husband (H) handled the tax returns? H knew about her offshore accounts but did not disclose them on their joint returns and checked the “no” box on Schedule B. Taxpayer does not look at Schedule B when she signs the tax return; nor does H tell her that he has checked the “no” box.

• In addition, what if her husband had an undeclared offshore account in a Swiss bank that was held by a Lichtenstein entity? H knows he is “hiding” this money from the IRS (as well as from Taxpayer). Taxpayer learns about this account when H gets a letter from the Swiss bank telling H that the bank is entering the Swiss Bank Program. What if Taxpayer wanted to go into the Streamlined Domestic Offshore Procedures Program and her husband wanted to go into the OVDP? Is this possible?

88

Hypothetical Two

• Taxpayers are married. Both are attorneys. Husband (H) inherits undeveloped property in France in 1995. H, together with his cousin in France, develops the property and sells the units over the years. The proceeds from the sales of these units are placed in an account in Paris, which is jointly held with his cousin.

• Throughout the years, H travels to France to assist with the development and sale of the property. Each time he returns to the U.S., he brings back $9,999.

• Wife (W) also has some small, undeclared offshore accounts in her home country of Austria. W is a dual citizen (Austria and U.S.). H is a U.S. citizen.

89

Hypothetical Two, con’t

• H and W seek your advice about their tax and international information return non-compliance. H wants to go into the Streamlined Domestic Offshore Procedures Program. H insists that he did not know about his tax or international information return obligations, but his accountant and W insist that he did and that he chose to not include any income on his joint tax return or to file an FBAR. W believes they should enter the OVDP.

• What do you advise?

• What if W did not have any offshore accounts and she did not want to enter the OVDP or the Streamlined Domestic Offshore Procedures Program? Since they file joint returns, is it possible for H to enter either program by himself?

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