Significant FBAR Penalties Upheld by Court

- By : P. Patel

Taxpayers have lost and the US Internal Revenue Service has scored a victory over the taxpayer in Kimble v USA, a court case concerning the reporting of foreign bank accounts. The taxpayer, Alice Kimble, held Swiss accounts at both HSBC and UBS in the early 2000s and was not aware until 2008 that she was required to report

Federal District Court Holds that FBAR Penalties in Excess of $100,000 is Unlawful

- By : P. Patel

Recently, the U.S. District Court for the Western District of Texas in U.S. v. Colliot, determined that an individual who repeatedly failed to timely file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, commonly referred to as an FBAR, could not be penalized in excess of the $100,000 regulatory maximum even though the relevant

New Court Case Limits the Reasonable cause exception to FBAR penalties

- By : P. Patel

Taxpayers across the country rely on advice from their accountants and CPAs to meet the complicated requirements of the U.S. Tax Code. But a new case, Jarnagin v United States, in the U.S. Court of Federal Claims suggests that CPA advice may not be enough to stop the IRS from assessing FBAR penalties for non-willful

New IRS practice unit: “Substantial compliance” doctrine, international information return penalties

- By : P. Patel

The IRS Large Business and International (LB&I) division last week publicly released a “practice unit” that addresses what the term “substantially complete” means with reference to international information return penalties, particularly Form 5471. The IRS recently released a new International Practice Unit (“IPU”) on failures to file form 5471.  IPUs are meant to act as a

Penalties for Form 5472 Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business

- By : P. Patel

We would like to highlight a recent change in the IRS’ policy with respect assessing statutory late filing penalties related to certain international information forms. Of particular concern to international businesses is the revised policy that the $10,000 penalty may be systematically applied during the initial processing of a Form 5472 that is attached to

Large Penalties: Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations

- By : P. Patel

Internal Revenue Code (I.R.C.) Section (§) 6038(a) and Treasury Regulation § 1.6038-2(a) require a U.S. citizen or resident alien to furnish information with respect to certain foreign business entities. This information includes any foreign partnership/corporation entity data, stock ownership data, financial statements, and intercompany transactions with related persons. The Form 5471, Information Return of U.S.

Method to Cure Delinquent or Incomplete Foreign Information Returns Without Penalties

- By : P. Patel

Last year, the IRS announced its third offshore voluntary disclosure initiative. Like the earlier initiatives, the 2012 OVDP is designed to encourage taxpayers with unreported offshore accounts and assets to voluntarily disclose them to the IRS. The 2012 OVDP is available to individuals and entities, including corporations, partnerships and trusts. Unlike the previous initiatives, this

IRS Announces New Rules for FBAR Penalties

- By : P. Patel

There are two types of penalties applicable to FinCEN  Form 114 (Report of Foreign Bank and Financial Accounts) (FBARs):  (1) Non-Willful and (2) Willful.  The penalties are theoretically assessed per account and not per FBAR; however, in practice, our firm has seen application on a per FBAR filing.  Additionally, the penalties are assessed for each

Opt Out of OVDI Program Penalties to Get a Lower Penalty

- By : P. Patel

Under the 2011 Offshore Voluntary Disclosure Initiative (OVDI) or 2012 Offshore Voluntary Disclosure Program (OVDP), the 2012 program gives no discretion to the IRS agents to reduce penalties. If a participant does not believe that he or she should have to pay the 27½% penalty, their only choice is to “opt out” of the program,

HSBC Bank Expects Significant Penalties from US Government for Violations

- By : P. Patel

Global bank HSBC has said it may face “significant” penalties from the US authorities with regard to an ongoing probe into suspected tax evasion by the US-based clients of its Indian unit, among other cases. The US tax department is investigating possible evasion of federal income taxes by the American residents of Indian origin through

How to Defend Against FBAR Penalties

- By : P. Patel

Following the IRS’ successful 2009 and 2011 offshore voluntary compliance initiatives, tax professionals should expect an increase in IRS examination activity of taxpayers who did not enter into these compliance initiatives. Approximately 30,000 taxpayers entered into the initiatives. There are hundreds of thousands that the IRS suspects are not in compliance. The IRS has a

Appeals of penalties imposed during the Offshore Voluntary Opt-Out

- By : P. Patel

When a taxpayer has a tax increase though a civil tax audit (or examination, in IRS terminology), a taxpayer has the right to appeal that increase administratively and through court, if unsuccessful administratively.  For taxpayers not willing to accept the 27.5% FBAR-equivalent penalty, they may opt-out of the standard FBAR penalty scheme and argue for

New EZPASS OVDP Without Any Penalties for Non-Resident U.S. Taxpayers

- By : P. Patel

Yesterday, as expected, the IRS announced its new New Filing Compliance Procedures for Non-Resident U.S. Taxpayers that taxpayers presenting “low compliance risk” should file delinquent tax returns, including delinquent information returns, for the past three years; and delinquent FBARs for the past six years.  This seems to be a new EZPASS or express OVDP without any penalties.

OVDI: Requesting issuance of a FBAR warning letter instead of penalties

- By : P. Patel

In a Tax Notes Today report of statements made at the Eastern Pennsylvania Working Together Conference in Malvern, PA, Jason Kuratnick, IRS Associate Area Counsel (Philadelphia), Small Business / Self-Employed Division is reported to have said: The IRS may send a warning letter in lieu of asserting penalties for failure to file a Form TD

The legal standard of “willfulness”: Opt out to avoid high penalties

- By : P. Patel

Under IRS Form 1040, at the bottom of Schedule B, Part III, on Page 2, Question 7(a) states: “at any time during the previous year, did you have any interest in or signatory or other authority over a financial account in a foreign country, such as a bank account, a security account, or other financial

Form 8938, FATCA, FBAR and penalties for all (including bankers)

- By : P. Patel

The IRS and US Treasury have stepped up their efforts toward tracking down delinquent tax payers and enforcing payment of overdue taxes. One of these initiatives is the “Foreign Account Tax Compliance Act”. FATCA is part of the Hiring Incentives to Restore Employment (HIRE) Act, which was designed to enforce higher tax compliance among U.S.

Foreign Account Penalties Are Unfair

- By : P. Patel

Our office is advising dozens of clients (including many HSBC customers) regarding offshore accounts, all of whom may be subject to large unfair penalties.  Finally it appears that someone in government is realizing the unfairness of the offshore penalties. In her June 30, 2011 Report to Congress, U.S. Taxpayer Advocate Nina Olson criticizes the IRS

IRS Has New Procedures for Scrutinizing Quiet Disclosures

- By : P. Patel

A Quiet Disclosure occurs when a person intentionally files tax returns (either amended or original returns, FBARs, and/or other International Informational Returns) outside of one of the IRS’ formal voluntary disclosure In other words, the individual submits the returns and hopes to fly below the radar so that the IRS does not discover that the

Analysis: IRS New Disclosure Program

- By : P. Patel

On November 29, 2018, the IRS released a memorandum that addressed the process for all voluntary disclosures following the end of the Offshore Voluntary Disclosure Program (“OVDP”) on September 28, 2018. The new voluntary disclosure procedure provides uniformity to offshore and domestic voluntary disclosures. The OVDP was initiated in 2009 and was designed to bring

New IRS Voluntary Disclosure in 7 Steps

- By : P. Patel

The following are the seven steps of the new updated IRS voluntary disclosure process: A taxpayer will make a voluntary disclosure preclearance request using IRS Form 14457 to IRS Criminal Investigation (CI). Taxpayers can request preclearance via mail or fax. No need to fear IRS Criminal Investigation (CI)’s involvement since they have always been involved

IRS Updated Voluntary Disclosure Practice is a Game-Changer

- By : P. Patel

Last week the IRS released a memorandum with new procedures for  an “Updated Voluntary Disclosure Practice” impacting all voluntary disclosures. The new updated voluntary disclosure practice (VDP) is a game-changer for offshore voluntary disclosures for US persons with unreported foreign assets. The Updated VDP Procedures The new procedures continue to provide taxpayers an ability to come into

New Post-OVDP IRS Voluntary Disclosure Procedures Announced

- By : P. Patel

The Internal Revenue Service released new updated procedures for voluntary disclosures since the old Offshore Voluntary Disclosure Program (OVDP) closed on September 28, 2018. Last week, IRS deputy commissioner Kirsten Wielobob issued Interim Guidance Memo LB&I-09-1118-014, Updated Voluntary Disclosure Practice (PDF) on November 20, 2018 to supplement procedures regarding the voluntary disclosure practice. The updated procedures apply

New Jersey Tax Amnesty program

- By : P. Patel

Today the New Jersey Division of Taxation announced the launch of their Tax Amnesty program. The program is intended to provide individuals and businesses with the opportunity to pay back taxes or file past returns with no penalties and reduced interest. “We are pleased to offer taxpayers a chance at compliance and a fresh start

New Jersey Enacts Tax Amnesty Bill

- By : P. Patel

Enacted legislation requires the New Jersey Division of Taxation to establish a 90-day state tax amnesty period that ends no later than January 15, 2019. The Legislature had previously passed a bill requiring a six-month amnesty period that had to end by December 31, 2018. (TAXDAY, 2018/06/26, S.12) However, Gov. Phil Murphy conditionally vetoed the

2018 ABA COMMENTS ON THE OFFSHORE VOLUNTARY DISCLOSURE PROGRAM AND THE STREAMLINED PROGRAMS

- By : P. Patel

We are members of the American Bar Association Section of Taxation, which on May 2, 2018 submitted comments to the IRS on the IRS Offshore Voluntary Disclosure Program (“OVDP”), the Streamlined Domestic Offshore Program (“SDOP”), and the Streamlined Foreign Offshore Program (“SFOP”). We co-authored the ABA comments. The comments are very constructive. It is hoped that the

New FBAR Court Case Makes it Easier for Taxpayers to be Deemed Willful

- By : P. Patel

There is a debate as to the “burden of proof” that must be met by the Internal Revenue Service (IRS) in asserting that an FBAR violation was “willful”.  This is significant because those who willfully fail to file the required FBAR on a timely basis, can be assessed a penalty of up to the greater

Denied access to or withdrew from the IRS Offshore Voluntary Disclosure Program (OVDP)?

- By : P. Patel

This year taxpayers who either were denied access to or withdrew from the IRS Offshore Voluntary Disclosure Program (OVDP) have been receiving Letter 5935 (HERE) from the IRS notifying them that they need to come into compliance with U.S. reporting requirements relating to foreign income, foreign entities, and/or foreign financial accounts. The letter is part of

Run to the Door: IRS Terminates Offshore Voluntary Disclosure Program (OVDP) effective September 28, 2018

- By : P. Patel

IRS Issue Number:    IR-2018-52 IRS to end offshore voluntary disclosure program; Taxpayers with undisclosed foreign assets urged to come forward now WASHINGTON – The Internal Revenue Service today announced it will begin to ramp down the 2014 Offshore Voluntary Disclosure Program (OVDP) and close the program on Sept. 28, 2018. By alerting taxpayers now, the IRS intends

New Unreported Offshore Assets case: Bad facts leads to bad results

- By : P. Patel

A resident of Connecticut who was originally from Korea has been hit with a record civil penalty of $14M, a six month prison sentence, and a fine of $100,000 for failing to report Swiss bank accounts totaling around $28M, the US Department of Justice (DoJ) has announced. The sentence is an indication that the US DoJ

FBAR statute of limitations court case ruling

- By : P. Patel

In its first decision of 2018, the US Tax Court considered whether the six-year statute of limitations in Code Section 6501(e)(1)(A)(ii) applied to a taxpayer who failed to file Foreign Bank Account Reporting, or FBAR forms from 2006 through 2008. The court held that the Internal Revenue Service could not go back beyond the general