CRIMINAL TAX: WHAT’S NEXT ON THE FBAR FRONT? LARRY ALAN CAMPAGNA, Houston Chamberlain Hrdlicka White Williams & Martin ELIZABETH COPELAND, San Antonio Oppenheimer, Blend, Harrison and Tate, Inc. JOHN (“JACK”) A. TOWNSEND, Houston Townsend & Jones LLP State Bar of Texas 29 th ANNUAL ADVANCED TAX LAW COURSE August 18-19, 2011 Houston CHAPTER 5
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CRIMINAL TAX:
WHAT’S NEXT ON THE FBAR FRONT?
LARRY ALAN CAMPAGNA, Houston
Chamberlain Hrdlicka White Williams & Martin
ELIZABETH COPELAND, San Antonio
Oppenheimer, Blend, Harrison and Tate, Inc.
JOHN (“JACK”) A. TOWNSEND, Houston
Townsend & Jones LLP
State Bar of Texas
29th
ANNUAL
ADVANCED TAX LAW COURSE
August 18-19, 2011
Houston
CHAPTER 5
LARRY A. CAMPAGNA. Texas Monthly magazine repeatedly has named Larry one of its
"Texas Superlawyers," and his practice has been commended in The Best Lawyers in
America, Chambers USA, and The Legal 500. Larry is a shareholder with Chamberlain,
Hrdlicka, White, Williams and Martin, in Houston, Texas. His practice concentrates on
federal, state and local tax controversies, both civil and criminal. He also teaches a course
in the law of tax crimes and money laundering as an Adjunct Professor at the University of
Houston Law Center. Larry is a co-author of the casebook Tax Crimes published by Lexis-
Nexis. He also serves on the Advisory Board of Editors of the Journal of Tax Practice and
Procedure. Larry received his B.A. (with High Honors and Special Honors in Plan II) and
J.D. degrees from the University of Texas at Austin. Larry has served the American Bar
Association Section of Taxation as Chair of the Committee on Civil and Criminal Tax
Penalties, as Chair of a Task Force on Offshore Credit Card Cases, and as a member of
the Committee on Appointments to the Tax Court; he formerly served as Chair of the
Committee on Employment Taxes and as a subcommittee chair for IRS Investigations and
Procedures. His major cases include: representing the first taxpayer to be awarded
attorney's fees by the Fifth Circuit Court of Appeals; serving as lead counsel in one of the
largest project cases in the history of the United States Tax Court; and successfully
defending a "Final Four" accounting firm in a large tax malpractice case. In 1995, Larry
was unanimously inducted as a Fellow of the American College of Tax Counsel. He is the
proud father of a seventeen year old son who long ago learned to stuff his father's jump
AREAS OF EXPERIENCE + Federal Income Taxation Planning and Controversy + Texas Margin Tax and Sales Tax Planning and Controversy + Board Certified in Tax Law by the Texas Board of Legal Specialization EDUCATION + J.D., The University of Texas School of Law, 1992 + B.B.A., with honors, Accounting, The University of Texas at Austin, 1986 PROFESSIONAL AFFILIATIONS + 2009 Recipient of The Janet Spragens Pro Bono Award as presented by
The American Bar Association, Section of Taxation + Honored by the American Society of Women Accountants as regional
winner of the 2007 Balance Award + Recognized as one of the Best Lawyers in America® 2010, as published
by Woodward/White, Inc. (2007-2011) + Recognized by Law & Politics and Texas Monthly magazine as a Texas
Super Lawyer in the area of Tax Law (2003-2009) + Listed by Scene in SA magazine as one of San Antonio’s Best Tax Law
Attorneys (2004-2010) + American Bar Association, Tax Section
· Committee on Appointments to the Tax Court, Chair
· Court Procedure and Practice Committee, Member
· Pro Bono Committee, Vice Chair
· Nominating Committee, Member
+ State Bar of Texas
· Treasurer
· Advanced Tax Law Course, Planning Committee Member
· Tax Controversy College, Planning Committee Member
+ Former Adjunct Professor, Our Lady of the Lake University School of Business
+ San Antonio Bar Association + American Bar Association Peer Mediation Project + Bexar County Women’s Bar Association
· Member
· Former Vice President, Treasurer and Director
+ South Texas IRS/Practitioners Council, Former San Antonio representative FIRM RANKINGS Oppenheimer, Blend, Harrison and Tate, Inc. has been ranked as San Antonio's leading Tax Law Firm by Woodward/White, Inc. (2009) ADMITTED + To the practice of law in Texas + U. S. Tax Court + Western District of Texas + Certified Public Accountant—Texas, 1988 ADDITIONAL INFORMATION Elizabeth works on all matters pertaining to Federal and State income taxation, both planning and tax controversies. She has expertise in dealing with the Internal Revenue Service at the administrative appeals level and in litigation. Recent United States Tax Court cases she has tried include:
· Sunbelt Clothing Company, Inc. v. Commissioner (taxpayer victory)
· AnnMarie Washington v. Commissioner (government concession after trial)
· Union Ganadera Regional de Chihuahua, Inc. v. Commissioner (taxpayer victory).
Elizabeth focuses on assisting businesses in determining the types of entities that best suit their needs, from the perspectives of tax savings and operational efficiency. She also assists taxpayers with foreign account disclosures and with criminal tax matters. Her previous experiences include:
· United States Tax Court, Washington, D.C.: Attorney Advisor, Judge Mary Ann Cohen, August 1992-August 1993
· Ernst & Young, Dallas, Texas, 1987-1989, and San Antonio, Texas, 1985-1987.
Elizabeth helped the State Bar of Texas form the Nation’s first statewide Tax Court Pro Bono program serving taxpayers in Dallas, El Paso, Houston, Lubbock, and San Antonio. The program has been used as a model for similar Bar-based programs throughout the United States.
222 SIDNEY BAKER SOUTH, SUITE 222 KERRVILLE, TEXAS 78028
PHONE - 830.792-2170
FAX - 830.895-0882 www.obht.com
JOHN A. (“JACK”) TOWNSENDPartner, Townsend & Jones, L.L.P.
Focus of Practice Civil and Criminal federal income tax controversy matters.
Experience Federal Tax Matters, including• Tax litigation in the U.S. Tax Court, U.S. District Courts, U.S. Court
of Federal Claims, most of the U.S. Courts of Appeals, and UnitedStates Supreme Court and before the IRS, involving: • Criminal cases (representing a defendant in the KPMG
criminal tax case – United States v. Stein in the SouthernDistrict of New York– touted by DOJ as the largest criminaltax case ever, and certainly one of the most controversial; theSecond Circuit Court of Appeals affirmed the dismissal ofthis defendant and 12 others based upon prosecutorialmisconduct in forcing KPMG to withdraw payment of theirfees under DOJ’s Thompson Memorandum. United States v.Stein, 435 F. Supp. 2d 330 (S.D.N.Y. 2006) and United Statesv. Stein, 495 F. Supp. 2d 390 (S.D.N.Y. 2007), aff'd UnitedStates v. Stein, 541 F.3d 130 (2d Cir. 2008).
• Civil cases (including transfer pricing (§ 482) and relatedcompetent authority issues), foreign tax credit and outboundtransfer issues).
• Expert testimony with respect to federal tax matters.
Past Employment U. S. Dept. of Justice, Tax Division (Trial 1974-77; Appeals 1969-74)
Activities University of Houston-Adjunct Professor of Law in the Tax Program, 1982-1988 and 1993 through present (teaching Tax Procedure (each Fall Semester)and Tax Fraud and Money Laundering (every other Spring Semester)).
Participant for programs by the ABA Tax Section's Court ProcedureCommittee; Tax Executives Institute, the Texas State Bar (partnerships andoil and gas), Houston Bar Association (partnerships), New York UniversityFederal Tax Institute (tax procedure); University of Houston School of Law(criminal tax), and Southern Methodist University School of Law (partner-ships and oil and gas taxation).
Mr. Townsend has authored the following books (downloadable from thefirm website) for his courses at the University of Houston Law School: Federal Tax Crimes (2011); and Federal Tax Procedure (2010).
Mr. Townsend has co-authored a book on Tax Crimes in the Lexis-Nexisgraduate tax series. Co-authors are Professors Steven Johnson and ScottSchumacher and Larry Campagna, a practitioner and adjunct at Universityof Houston Law School where he and Mr. Townsend jointly teach the TaxFraud and Money Laundering course.
Mr. Townsend has authored many articles, including the following:C Tax Obstruction Crimes: Is Making the IRS’s Job Harder Enough?
(In 2009 in Houston Business and Tax Journal (on line article athttp://www.hbtlj.org/v09p2/v09p2townsend.pdf
C Judge Posner's Opinion in Kikalos, 108 Tax Notes 593 (2005).C Analysis of the Fastow Plea Bargains, 102 Tax Notes 1425 (2004).C Tax Treaty Interpretation, 55 Tax Lawyer 219 (Fall 2001).C Burden of Proof in Tax Cases: Valuations and Ranges, 2001 TNT
187-37 (2001).C Taxpayer Rights in Criminal Investigations, 90 Tax Notes 1842
(2001).C Reconciling Section 482 and the Nonrecognition Provisions, 50 Tax
Lawyer 701 (1997).C Audits and Appeals: Developments, 54 N.Y.U. Inst. on Fed.
Taxation, ch. 26 (1996).
Member American Bar Association, Tax Section Texas State Bar Association, Tax Section.Houston Bar Association (Past President and Director of Tax Section)Houston Tax Roundtable (Past Chair)The Tax Procedure Group (Past Chair)
Admitted Texas
Education University of South Carolina, A.B., 1964.University of Virginia, LL.B., 1967.New York University LL.M. (Taxation), 1969.
Certification Tax Law Specialist, Texas Board of Legal Specialization.
Honors Special Commendation Award at Attorney General's Awards Ceremony,Department of Justice; and Tax Division Meritorious Service Award.
Listed since 1997 among America’s top tax lawyers in The Best Lawyers inAmerica, the premier national peer group lawyer ratings.
Listed in Texas Lawyer’s “Go-to-Guide” as being among Texas’ top 5 taxlawyers (October 15, 2002).
Listed in Chambers USA Guide to America’s Leading Lawyers for BusinessListed in Who’s Who Legal (Texas 2008)
BANK SECRECY ACT ................................................................................................................................................. 2
FBAR IN GENERAL ..................................................................................................................................................... 3
DEFINITION OF A UNITED STATES PERSON ........................................................................................................ 5
DEFINITION OF FINANCIAL ACCOUNTS ............................................................................................................... 6
DEFINITION OF FINANCIAL INTEREST .................................................................................................................. 7
DEFINITION OF SIGNATURE OR OTHER AUTHORITY ....................................................................................... 7
REPORTING FOR JOINT ACCOUNTS ....................................................................................................................... 8
POTENTIAL CIVIL PENALTIES THAT COULD APPLY ....................................................................................... 28
HIRE ACT OF 2010 AND FACTA .............................................................................................................................. 31
DEPARTMENT OF THE TREASURY - OPT OUT AND REMOVAL GUIDE ....................................................... 35
DRAFT FORM OF STATEMENT OF SPECIFIED FOREIGN FINANCIAL ASSETS ............................................ 54
Criminal Tax: What’s Next on the FBAR Front? Chapter 5
Criminal Tax: What’s Next on the FBAR Front?
Section of TaxationState Bar of TexasState Bar of TexasAugust 18, 2011
Larry Alan Campagna, Chamberlain Hrdlicka White Williams & Martin
Houston TX
Elizabeth Copeland, Oppenheimer, Blend, Harrison and Tate, Inc.
San Antonio TX
John (“Jack”) A. Townsend, Townsend & Jones LLPHouston TX
IntroductionIntroduction
Develop a practical understanding of the FBAR foreign acco nt reporting
Objectives:
Overview of FBAR reporting requirements
Some topics we’ll cover:
the FBAR foreign account reporting requirements
Gain awareness of recent developments surrounding the 2011 new Offshore Voluntary Disclosure Program and the pending Offshore Voluntary Disclosure Initiative
Develop a practical and strategic approach to delinquent FBARs, voluntary disclosures and current IRS
Overview of potential FBAR penalties
IRS Voluntary Disclosure Practice
Treatment of Taxpayers in the 2009 Offshore Voluntary Disclosure Program (OVDP)
Considerations in “opting-out” of the OVDP th OVDI examination proceduresor the OVDI
Due diligence requirements by representatives of OVDI taxpayers
Overview of Foreign Account Reporting Compliance (FATCA)
And more!
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Criminal Tax: What’s Next on the FBAR Front? Chapter 5
Bank Secrecy ActBank Secrecy Act
Foreign Bank and Financial Accounts Report(FBAR) reporting requirements founded in( ) p g qthe Bank Secrecy Act (BSA) of 1970
Authorizes the Secretary of the Treasury(Secretary) to require residents or citizens ofthe United States to keep records and/or filereports concerning transactions with any foreignagencyagency
Financial Crimes and Enforcement Network(FinCEN) delegated enforcement to IRS
Bank Secrecy ActBank Secrecy Act
U.S. citizens, residents or a person in anddoing business in the U.S. must file areport with the government if they have afinancial account in a foreign countrywith a value exceeding $10,000 at anytime during the calendar year
Taxpayers comply by noting the accountp y p y y gon their income tax return and by filingForm 90-22.1, the FBAR
Due date is June 30th each year
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Criminal Tax: What’s Next on the FBAR Front? Chapter 5
FBAR AuthorityFBAR Authority
31 U.S.C. § 5314
31 U S C § 5321(a)(5)31 U.S.C. § 5321(a)(5)
§ 103.24
Instructions to the FBAR
Internal Revenue Manual (IRM) 4.26.16
Internal Revenue Manual (IRM) 4.26.17
FBAR in GeneralFBAR in General
FBAR is not a tax return, but an FBAR is not a tax return, but an information report filed with the Treasuryinformation report filed with the Treasury
Indicated on Form 1040, Schedule B, Part IIIIndicated on Form 1040, Schedule B, Part III
Deadline for filing FBAR is on or before Deadline for filing FBAR is on or before June 30June 30thth the following yearthe following year
–– No extensions grantedNo extensions granted
FBAR is not attached to taxpayer’s FBAR is not attached to taxpayer’s individual income tax returnindividual income tax return
–– Not subject to IRC Section 6103 confidentiality Not subject to IRC Section 6103 confidentiality and nondisclosure protectionsand nondisclosure protections
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Criminal Tax: What’s Next on the FBAR Front? Chapter 5
FBAR in General FBAR in General (cont.)(cont.)
Report of Foreign Bank and Financial Report of Foreign Bank and Financial Accounts TD F 90Accounts TD F 90--22.1 (FBAR) is available 22.1 (FBAR) is available at www.irs.treas.govat www.irs.treas.gov
FBAR is filed by mailing to:FBAR is filed by mailing to:
–– U.S. Department of TreasuryU.S. Department of TreasuryP.O. Box 32621P.O. Box 32621Detroit, MI 48232Detroit, MI 48232--06210621,,
FBAR is considered FBAR is considered filed when receivedfiled when received in in Detroit Detroit -- NOT when postmarkedNOT when postmarked
PersonsPersons filefile aa firstfirst yearyear electionelection onon hishis incomeincome taxtaxreturnreturn toto bebe treatedtreated asas aa residentresident alienalien
Definition of a United States Definition of a United States Person Person (cont.)(cont.)
–– AA personperson doingdoing businessbusiness inin thethe UnitedUnited StatesStates
AA certificatecertificate ofof incorporationincorporation fromfrom aa UU..SS.. statestateestablishesestablishes thatthat thethe corporationcorporation isis aa UU..SS.. PersonPerson
AA foreignforeign subsidiarysubsidiary ofof aa UU..SS.. PersonPerson isis notnot subjectsubject totothethe FBARFBAR filingfiling requirementsrequirements
AA corporationcorporation thatthat ownsowns directlydirectly oror indirectlyindirectly moremoreAA corporationcorporation thatthat ownsowns directlydirectly oror indirectlyindirectly moremorethanthan 5050 percentpercent interestinterest inin oneone oror moremore otherother entitiesentitiesisis permittedpermitted toto filefile aa consolidatedconsolidated FBARFBAR
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Criminal Tax: What’s Next on the FBAR Front? Chapter 5
Definition of Financial AccountsDefinition of Financial Accounts
Financial accounts are:
– Bank accountsBank accounts
– Savings accounts
– Checking accounts
– Time deposits
– Securities accounts
Mutual funds– Mutual funds
– Brokerage accounts
– Securities derivatives accounts
Definition of Financial Accounts Definition of Financial Accounts (cont.)(cont.)
– Accounts where the assets are held in acommingled fund
– Owner holds an equity interest in the fund
– Any other account maintained in a foreignfinancial institution or with a person doingbusiness as a financial institution
– An insurance policy having a cash surrendervaluevalue
– NOT individual bonds, notes, or stockcertifications held by the filer
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Criminal Tax: What’s Next on the FBAR Front? Chapter 5
Definition of Financial InterestDefinition of Financial Interest
Financial Interest includes accounts for which the U.S.Person is the owner of record or has legal title, whether theaccount is maintained on his or her own benefit or for thebenefit of others including non-United States persons
– Also includes:
Accounts where the owner of record or holder of legal title is aperson acting as an agent, nominee, or in some other capacity onbehalf of a U.S. Person
A corporation in which a U.S. Person directly or indirectly ownsmore than 50% of the total value of the shares of stock
An account where the owner of record or holder of legal title is:
A partnership in with the U.S. person owns interest in morethan 50% of the profits
A trust in which the U.S. person either has a presentbeneficial interest in more than 50% of the current income
Definition ofDefinition ofSignature or Other AuthoritySignature or Other Authority A U.S. person has account signature authority if
that person can control the disposition of moneyor other property in the account by delivery of aor other property in the account by delivery of adocument containing his signature to the bank orother person with whom the account ismaintained
A person with other authority over an account isone who can exercise power that is comparable toi t th it t b di tsignature authority over an account by direct
communication, either orally or by some othermeans, to the bank or other person with whomthe account is maintained
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Criminal Tax: What’s Next on the FBAR Front? Chapter 5
Reporting for Joint AccountsReporting for Joint Accounts
Each U.S. person jointly maintaining anaccount (or if several persons each own apartial interest in an account) must file anFBAR
IRS will accept a single FBAR only for anaccount jointly held by a husband and wife
FBAR PenaltiesFBAR Penalties
The two primary penalties applicable toFBARs are Non-Willful and Willful:
– Non-Willful
Penalty may be waived if there is reasonable cause.LMSB-4-0908-047 (Oct. 31, 2008)
Examiners must weight facts and circumstances anddetermine whether:
A i l i ffi i A warning letter is sufficient,
Penalties less than the mitigation guidelines areappropriate, or
Penalties set forth in the mitigation guidelines areappropriate. Id.
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Criminal Tax: What’s Next on the FBAR Front? Chapter 5
Applies to any person who has willfully violated theFBAR reporting or recordkeeping provisions
Test for willfulness is whether there was a voluntary,intentional violation of a known legal duty
Burden to establish willfulness is on the IRS by clearand convincing evidence. ILM 200603026
Compare and contrast United States v. Williams,2010 U.S. Dist. LEXIS 90794 (ED VA 2010).
If it is determined that the violation was due toreasonable cause, the willfulness penalty should notbe asserted
Willfulness may be demonstrated by the consciouschoice to not comply with FBAR requirements
Statute of LimitationsStatute of Limitationsto Assess Penaltiesto Assess Penalties
The statute of limitations to assess aFBAR civil penalty is six years [31 USCSection 5321(b)(1)] even if the FBAR hasnot been timely filed, and once assessed,the government must bring an action torecover the assessed FBAR penalty withintwo years from the date of assessment.
The statute of limitations for criminal BSAviolations is five years
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Criminal Tax: What’s Next on the FBAR Front? Chapter 5
Penalty SummaryPenalty Summary
The following chart highlights the civil and criminal penalties that maybe asserted for not complying with the FBAR reporting and recordkeeping requirements for violations occurring after October 22, 2004:
VIOLATIONVIOLATION CIVIL CIVIL PENALTIESPENALTIES
CRIMINAL CRIMINAL PENALTIESPENALTIES
COMMENTSCOMMENTS
NonNon--Willful ViolationWillful Violation Up to $10,000 forUp to $10,000 foreach negligent violationeach negligent violation
Willful Willful -- Failure to Failure to file FBAR or retain file FBAR or retain records of accountrecords of account
Up to the greater of Up to the greater of $100,000, or 50 percent $100,000, or 50 percent of the amount in the of the amount in the account at the time of the account at the time of the
Up to Up to $250,000 or 5 $250,000 or 5 years or bothyears or both
31 U.S.C. 31 U.S.C. §§5321(a)(5)(C)5321(a)(5)(C)31 U.S.C. 31 U.S.C. §§5322(a)5322(a)and 31 C.F.R. and 31 C.F.R. §§103.59(b)103.59(b)for criminal. The penaltyfor criminal. The penalty
violationviolation applies to all U.S. persons.applies to all U.S. persons.
Willful Willful -- Failure to Failure to file FBAR or retain file FBAR or retain records of account records of account while violating while violating certain other lawscertain other laws
Up to the greater of Up to the greater of $100,000, or 50percent of $100,000, or 50percent of the amountthe amountin the account at the time in the account at the time of the violationof the violation
Up to Up to $500,000 or 10 $500,000 or 10 years or bothyears or both
31 U.S.C. 31 U.S.C. §§5322(b) and 31 5322(b) and 31 C.F.R. C.F.R. §§103.59(c) for 103.59(c) for criminal. The penaltycriminal. The penaltyapplies to all U.S. persons.applies to all U.S. persons.
Civil and Criminal Penalties may be imposed together. 31 U.S.C. Civil and Criminal Penalties may be imposed together. 31 U.S.C. §§5321(d).5321(d).
Historical IRS Voluntary Historical IRS Voluntary Disclosure Practice Disclosure Practice IRM 9.5.11.9 IRM 9.5.11.9
Douglas H. Shulman, IRS Douglas H. Shulman, IRS CommissionerCommissioner
February 8, 2011February 8, 2011y ,y ,Announced a new 2011 program through 8/31/11
“This new effort gives those hiding money inforeign accounts a tough, fair way to resolvetheir tax problems once and for all. And itgives people a chance to come in before we findgives people a chance to come in before we findthem.”
Note that the 2009 OVDP closed withapproximately 15,000 voluntary disclosuressubmitted.
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Criminal Tax: What’s Next on the FBAR Front? Chapter 5
§§6651(a)(1) failure to file penalty applies, if 6651(a)(1) failure to file penalty applies, if applicableapplicable
§§6651(a)(2) failure to pay penalty applies, if 6651(a)(2) failure to pay penalty applies, if applicableapplicable
FBAR and/or other foreign account FBAR and/or other foreign account reporting penalties are covered by a 25% reporting penalties are covered by a 25% miscellaneous penaltymiscellaneous penalty
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Criminal Tax: What’s Next on the FBAR Front? Chapter 5
Do Not Use OVDI IfDo Not Use OVDI IfNo Underreporting But No FBARNo Underreporting But No FBAR
If the taxpayer reported all income on his return and merely failed to file an If the taxpayer reported all income on his return and merely failed to file an FBAR, OVDI is not necessary and no penalty will apply for 2003FBAR, OVDI is not necessary and no penalty will apply for 2003--2009 2009 failures as long as the taxpayer:failures as long as the taxpayer:failures, as long as the taxpayer:failures, as long as the taxpayer:
–– Files the late FBARs with an explanatory statement to:Files the late FBARs with an explanatory statement to:Department of Treasury, Post Office Box 32621, Detroit, MI 48232Department of Treasury, Post Office Box 32621, Detroit, MI 48232--06210621By August 31, 2011 (see FAQ 17) By August 31, 2011 (see FAQ 17) This savings clause extended from August 31st to November 1, 2011 by Notice 2011This savings clause extended from August 31st to November 1, 2011 by Notice 2011--5454The standard is based on fully reporting income not no tax due, so someone who owed The standard is based on fully reporting income not no tax due, so someone who owed no additional tax but failed to report foreign interest would not qualify under this savings no additional tax but failed to report foreign interest would not qualify under this savings clauseclause
–– The penalty protection also applies to failures to file other foreign reporting forms The penalty protection also applies to failures to file other foreign reporting forms such as 5471s 3520s 8865s 926s etc if there is no underreporting of incomesuch as 5471s 3520s 8865s 926s etc if there is no underreporting of incomesuch as 5471s, 3520s, 8865s, 926s, etc. if there is no underreporting of income such as 5471s, 3520s, 8865s, 926s, etc. if there is no underreporting of income (see FAQ 18)(see FAQ 18)
For 2010 filings, Fin Cen Notice 2011For 2010 filings, Fin Cen Notice 2011--1 extended the time for filing FBARs 1 extended the time for filing FBARs to June 30, 2012 if the filing party was an employee or officer of a U.S. to June 30, 2012 if the filing party was an employee or officer of a U.S. owned foreign corporation and such individual had no financial interest in owned foreign corporation and such individual had no financial interest in the account, but had signatory or other authority over the foreign accountthe account, but had signatory or other authority over the foreign account
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Criminal Tax: What’s Next on the FBAR Front? Chapter 5
How to make a Voluntary How to make a Voluntary Disclosure under the 2011 OVDIDisclosure under the 2011 OVDI
2011 OVDI Examinations2011 OVDI ExaminationsFAQ 26 and 27FAQ 26 and 27
FollowingFollowing receiptreceipt ofof thethe completecomplete VoluntaryVoluntaryDisclosureDisclosure Package,Package, aa formalformal examinationexamination isis notnotcontemplatedcontemplated;; although,although, thethe disclosuredisclosure willwill bebeco te platedco te plated;; alt oug ,alt oug , t et e d sclosu ed sclosu e w llw ll bebeassignedassigned toto aa civilcivil examinerexaminer toto certifycertify thethe taxtaxreturnsreturns forfor accuracy,accuracy, completenesscompleteness andandcorrectnesscorrectness
–– TaxpayersTaxpayers whosewhose highesthighest aggregateaggregate accountaccountbalancebalance (including(including thethe fairfair marketmarket valuevalue ofofassetsassets inin undisclosedundisclosed offshoreoffshore entitiesentities andand thetheassetsassets u d sclosedu d sclosed o s o eo s o e e t t ese t t es a da d t et efairfair marketmarket valuevalue ofof anyany foreignforeign assetsassets thatthatwerewere eithereither acquiredacquired withwith improperlyimproperly untaxeduntaxedfundsfunds oror producedproduced improperlyimproperly untaxeduntaxed income)income)inin eacheach ofof thethe yearsyears coveredcovered byby thethe 20112011 OVDIOVDIisis lessless thanthan $$7575,,000000 willwill qualifyqualify forfor aa 1212..55%%offshoreoffshore penaltypenalty
No 2009 OVDP Taxpayer Left No 2009 OVDP Taxpayer Left Behind (FAQ 52 and 53)Behind (FAQ 52 and 53)
TaxpayersTaxpayers whowho participatedparticipated inin thethe 20092009 OVDPOVDPwhosewhose casescases havehave beenbeen resolvedresolved andand closedclosed withwith aaFormForm 906906 closingclosing agreementagreement whowho believebelieve thethe factsfactsoo 906906 clos gclos g ag ee e tag ee e t w ow o bel evebel eve t et e actsactsofof theirtheir casecase qualifyqualify themthem forfor thethe 55%% oror thethe 1212..55%%reducedreduced penaltypenalty criteriacriteria ofof thethe 20112011 OVDI,OVDI, butbutpaidpaid aa higherhigher penaltypenalty amountamount underunder thethe 20092009OVDPOVDP shouldshould provideprovide aa statementstatement toto thisthiseffecteffect
AccuracyAccuracy--relatedrelated penaltypenalty onon underpaymentsunderpayments ofof taxtax -- IRCIRCyy p yp y p yp y66626662 -- dependingdepending uponupon whichwhich componentcomponent ofof thethe accuracyaccuracy--relatedrelated penaltypenalty isis applicable,applicable, aa taxpayertaxpayer maymay bebe liableliable forfor aa2020%% oror 4040%% ofof thethe taxtax underpaymentunderpayment
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Criminal Tax: What’s Next on the FBAR Front? Chapter 5
HIRE Act of 2010 and FACTAHIRE Act of 2010 and FACTA
President Obama signed the Hiring Incentives to Restore Employment Act (Pub. L. No. 111-14) (“HIRE Act”)( HIRE Act )
HIRE modified provision of the Foreign Account HIRE modified provision of the Foreign Account Tax Compliance Act (“FATCA”)Tax Compliance Act (“FATCA”)
FACTA provisions of the HIRE Act affect 3 areas:
– Increased reporting for individuals with foreign assets
– Substantive changes in U.S. federal income tax law
– Disclosure and compliance issues for foreign financial institutions
FATCAFATCA
Now Foreign Banks must gather Now Foreign Banks must gather information on their customers for theinformation on their customers for theinformation on their customers for the information on their customers for the United States orUnited States or–– Face a 30% withholding on any payment from Face a 30% withholding on any payment from
a U.S. source.a U.S. source.The 30% withholding applies to all of the foreign The 30% withholding applies to all of the foreign banks clients whether U.S. citizens or not.banks clients whether U.S. citizens or not.For Example, a German bank with 90% of its For Example, a German bank with 90% of its deposits held by German citizens and 10% held by deposits held by German citizens and 10% held by U.S. citizens/residents that does not elect to U.S. citizens/residents that does not elect to disclose its accountholder information.disclose its accountholder information.
–– 30% withholding on transactions with U.S. banks or U.S. 30% withholding on transactions with U.S. banks or U.S. securities firms would be required on any funds transfer to the securities firms would be required on any funds transfer to the German Bank. So the German citizen would have to file U.S. German Bank. So the German citizen would have to file U.S. returns to get their money backreturns to get their money back
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Criminal Tax: What’s Next on the FBAR Front? Chapter 5
FATCA Requires Foreign Banks to FATCA Requires Foreign Banks to Disclose US Taxpayer InformationDisclose US Taxpayer InformationName & Address of U.S. Account Holder;Name & Address of U.S. Account Holder;
The Foreign Account Number;The Foreign Account Number;
The Foreign Account Balance;The Foreign Account Balance;
The Yearly Gross Deposits and Yearly The Yearly Gross Deposits and Yearly Gross Withdrawals from the Foreign Gross Withdrawals from the Foreign AccountAccountAccount.Account.
FATCA FATCA Requires US Taxpayers to Requires US Taxpayers to Disclose Foreign AssetsDisclose Foreign Assets
U.S. Taxpayers with Foreign Financial U.S. Taxpayers with Foreign Financial Assets with values > $50 000Assets with values > $50 000Assets with values > $50,000Assets with values > $50,000–– Now have reporting requirements on their Now have reporting requirements on their
1040 for the following:1040 for the following:Depository Accounts;Depository Accounts;
Securities issued by Foreign Entities (or Persons);Securities issued by Foreign Entities (or Persons);
Financial Instruments Issued by Foreign Entities or Persons;Financial Instruments Issued by Foreign Entities or Persons;
Any Interest in a Foreign Entity.Any Interest in a Foreign Entity.
–– Penalty is 40% for the understatement Penalty is 40% for the understatement derived from an unreported foreign financial derived from an unreported foreign financial asset.asset.
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More on FACTAMore on FACTA
The reporting is on a new foreign asset disclosure form that will attach to an individual’s yearly 1040 filing (See attached draft form 8938)
Does not eliminate the need to also file FBAR or other foreign reporting forms
Includes foreign accounts and foreign assets such as real estate
There is now a six year statute of limitations There is now a six-year statute of limitations for omission of income relating to foreign assets
Thank You for ComingThank You for Coming
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