Offshore Voluntary Disclosure and Tax Compliance
Are you U.S. citizen or green card holder living abroad or a foreign national residing in the U.S. with foreign income, foreign bank accounts, or financial assets? If so, you may be required to disclose these assets on a U.S. tax return, a U.S. Treasury information Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts (FBAR), and/or other U.S. informational returns. Failure to properly disclose foreign income, foreign financial accounts, or foreign assets can result in significant civil and criminal penalties. As recent international cases with overseas accounts have shown, the U.S. government’s and the Internal Revenue Service’s powers to enforce taxation and reporting requirements have grown far beyond boarders of the United States. The U.S. government and its international partners are aggressively pursuing those who hide income or assets outside the U.S. to evade paying U.S. taxes. If you have undisclosed foreign income, undisclosed foreign accounts, or undisclosed foreign assets, it is extremely important that you retain the services of an experienced international tax attorney who will protect your rights, safeguard your interests, and work proactively with the Internal Revenue Service and state taxing agencies. Our team of highly experienced international tax attorneys can also help you get into compliance with the Internal Revenue Service and minimize or eliminate your exposure to any offshore penalties and other problems.
Offshore Voluntary Disclosure Representation
Individuals who have previously underreported or failed to disclose foreign source income and have unreported foreign bank accounts may be eligible to participate in the Internal Revenue Service Offshore Voluntary Disclosure Program (“OVDP”). In order to participate in the OVDP, participants must pay all delinquent federal taxes and interest for the past eight years. The participant must also disclose any previously undisclosed interests in foreign bank accounts on FBAR informational returns and Form 8938 (Statement of Specified Foreign Financial Assets. A 27.5 percent penalty will be calculated against the participant’s offshore accounts and unreported foreign income producing assets. In certain situations, some individuals will be eligible for 5 or 12.5 percent penalties. If accepted into the OVDP, in exchange for participating in the OVDP, participants can generally avoid criminal prosecution and are subject to significantly reduced penalties. Our international tax attorneys routinely represent individuals through the Internal Revenue Service OVDP. At the conclusion of the submission of tax returns through the OVDP, we advise our clients to either accept the OVDP penalty or to opt out of the OVDP penalty framework.
The OVDP may or may not be appropriate for every individual with previously undisclosed foreign financial assets, income, or foreign financial accounts. Whether an individual should participate in the OVDP depends on the individual facts and circumstances. In certain cases, individuals who did not intend to defraud the IRS but instead failed to disclose their foreign accounts or assets as a result of a mistake may make a disclosure to the IRS outside the framework of the OVDP and be eligible for a significant reduction or elimination of offshore penalties. In other cases, individuals considering participating in the OVDP must consider the risks of the program. Two recent cases demonstrate the risks associated with the OVDP. First, the IRS recently disqualified U.S. taxpayers with accounts at Bank Leumi from participating in the OVDP without explanation. Although the IRS ultimately reversed its position and readmitted the individuals that were previously disqualified from the OVDP, the IRS’ ability to simply disqualify any participant from the OVDP demonstrates the dangers of participating in the OVDP. The risk of participating in the OVDP was also recently best exemplified in the Ty Warner case. In the case of Ty Warner, the founder of Beanie Bag and a member of the Forbes 400 richest Americans, entered into the OVDP only to be rejected for unknown reasons. The IRS used the information provided by Ty Warner to ultimately prosecute him. Ty Warner now faces millions of dollars of penalties and a prison term of up to five years. These two examples demonstrate that anyone who is considering entering into the OVDP should proceed with caution.
Individuals with interests in previously undisclosed foreign financial accounts, previously undisclosed foreign income, and previously undisclosed foreign financial assets are afforded constitutional protections against self-incrimination (5th Amendment), unreasonable search and seizure (4th Amendment), and against excessive fines (8th Amendment). In many cases, these constitutional protections disappear once an individual enters the OVDP. Anyone considering entering into the OVDP must understand that it could be a risky strategy to voluntarily contact the IRS without the benefit of transactional or use immunity. If an individual seeks to enter into the OVDP, the disclosure must be carefully considered and planned.
In the current environment, some individuals do not have the luxury of “planning” how to best make a disclosure to the IRS because their names have already been disclosed to the IRS or is about to be disclosed to the IRS. Some of these individuals may not be eligible to participate in the OVDP either because their name was already disclosed to the IRS or because of some previous conduct that disqualifies them from participating in the OVDP. Even though in these situations, participation in the OVDP may not be possible, it still may be beneficial to contact the IRS or the Department of Justice.
Whatever the case, our team of international tax attorneys carefully analyze each case and advise our clients how to best make disclosures to the IRS while making certain our clients’ constitutional and other rights are protected.
A significant percentage of our practice is dedicated to offshore compliance issues. Our international tax attorneys handle a wide variety of cases ranging from complex cases to relatively simple cases. We have successfully represented hundreds of clients before the last four offshore voluntary disclosures offered by the Internal Revenue Service.
If you have unreported foreign income and/or unreported foreign bank accounts and other assets, we will advise you how to minimize or eliminate your exposure to criminal and civil penalties.
Representation of Financial Institutions before the United States Government
On August 29, 2013, the U.S. offered a Voluntary Disclosure Program for Swiss Banks to resolve previously undeclared income from U.S. account holders. We expect the U.S. government to expand the voluntary disclosure to financial institutions outside of Switzerland. Our international tax attorneys are available to consult any Swiss or foreign financial institution in regards to the compliance requirements necessary to enter into the new Voluntary Disclosure Program. We are also available to consult with any foreign financial advisor potentially facing penalties in the U.S. in regards to the advice provided to U.S. account holders.
Offshore Banking Representation in IRS Civil Audits and Criminal Investigations
Our international tax attorneys are available to assist individuals who are being audited by the Internal Revenue Service relating to undisclosed foreign income or offshore banking. Our international tax attorneys’ “high degree of in the trenches” experience in these extremely complex areas unknown to so many, enables us to effectively represent our clients dealing with Internal Revenue Service auditors, criminal investigators, or federal prosecutors. Our attorneys have been the trial counsel in a number of matters involving offshore tax compliance and offshore penalty cases. If you are currently being audited by the IRS or investigated by the U.S. government, please call us to arrange a consultation with an international tax attorney. We will aggressively advocate on your behalf to protect your freedom and assets.
Foreign Tax Compliance
Our international tax attorneys and certified public accountants have extensive experience advising our clients how to properly disclose their foreign transactions in our preparation of our clients’ U.S. tax returns including the following:
- Passive Foreign Investment Company Reporting (“PFIC”) on Internal Revenue Service Form 8621. We advise our clients regarding making Qualified Electing Fund (“QEF”) and Mark-to-Market elections which can avoid an extremely harsh tax treatment if not timely made.
- Preparation of Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts (“FBAR”).
- Statement of Specified Foreign Financial Assets, Form 8938 (“FATCA”).
- Annual Return to Report Transactions with Form Trusts and Receipt of Foreign Gifts on Form 3520. In regards to preparing Form 3520s, we advise clients how to properly disclose Canadian Registered Retirement Plans, including: Registered Retirement Savings Plans “RRSP,” Registered Retirement Income Funds “RRIFs,” Canadian Profit Sharing Pension plans “PSPs,” United Kingdom Employer-Financed Retirement Benefits Scheme “EFURB” or “EFRBS,” and Australia Superannuation accounts.
- We advise clients with interests in foreign corporations if Form 5471s are required to be filed. If Form 5471s are required to be filed, we prepare the necessary Form 5471s.
Whatever your foreign situation, whether you have just discovered that you may have inadvertently violated some harsh laws that you never heard of or if in retrospect, you may have made some past mistakes, we have the actual in the trenches experience to obtain the best possible results no matter what your facts and circumstances.
also see;OVDI 2011, 2012 Offshore Voluntary Disclosure Program; One Size Does Not Fit All